Corporations Flashcards
Filing a Corp
name, number of shares, name and address of incorporators
Watch for clause limiting corps purpose, activities beyond scope are ultra vires and may hold directors responsibile
Pierce Corp Vail
Alter Ego
Inadequate Capitalization at inception
Perpetuating a Fraud
If Pierced: generally only active SH liable, torts only
Capital Structure
Debt Securities: create debtor-creditor relationship
Equity Securities: stocks, create ownership interests
Law that Governs Corporations
Model Business Corporations Act
Notice of Meetings
Must give date, time and location of annual meetings and special meetings also need the purpose
Improper Notice: invalidate action
Proxies
Written proxies valid for 11 months
Revocable unless expressly provide and paid consideration
Fed Law: proxy must fully disclose all material facts and prohibits misstatements
Quorum
Majority of outstanding voting shares must be present for valid vote
SH: may leave once quorum met, and still ok
Directors: leaving invalidates
Shareholder Duties, Rights & Liabilities
Duties:
Limited Fiduciary: many states impose bc like partner
Minor shareholder: major have duty to minor not to use their power to benefit at the expense of minor SH
If close corp- may have more
Rights:
Inspection: limited: books papers act records; Unqualified: articles, by laws, minutes, annual reports, names and addresses of directors
Preemptive Right: right to purchase shares to maintain proportionate ownership interest usually under MBCA only if provided for
Suits: can bring direct suit to enforce right of SH or derivative suit to enforce a right belonging to corp
Distributions: no right to receive unless declared by board- based on Insolvency, Preferences and director liability
Liability: Normally not a fiduciary so only to minority SH and if corp veil pierced and you were an active SH
Distributions: Insolvency
Insolvency limitations—no distribution if:
1) Corporation unable to pay its debts as they become due
2) Total assets are less than total liabilities
Distributions: Preferences
Preferences—shares may have a preference to distributions
1) Cumulative—if distribution not declared or paid in a certain year, it accumu- lates until paid
2) Cumulative if earned—preference accumulates only if profits for year were sufficient to pay preference
3) Participating—receive stated preference and a share of the distribution made to common shareholders
Directors: Duties
Attend meetings- no proxies
Delegation to committees
Duty of Loyalty
Duty of Care
Fiduciary Duty
Directors: Liabilities
BJR, protects if:
1) good faith
2) care that a person in a like position would exercise, and
3) manner reasonably believed to be in the best interests of the corp
Articles may further limit or eliminate director personal liability to corporation or shareholders except:
1) To the extent director received improper benefit;
2) For liability for unlawful distributions; or
3) For intentionally inflicted harms or criminal violations of law
Reasonable reliance defense
1) Director may defend suits with a claim of reasonable reliance on opinions, reports, etc., prepared by experts or reliable employees
Waste—a director has a duty to prevent corporate waste
No self-dealing without disclosure and approval—duty of loyalty
1) A transaction between a corporation and a director will not be set aside for self-dealing if:
a) The director disclosed all material facts, and transaction was approved by disinterested directors or shareholders; or
b) The transaction was fair to the corporation
Corporate opportunity doctrine
1) A director may not divert to himself a business opportunity within the corporation’s line of business without first giving the corporation an oppor- tunity to act (a.k.a. usurpation)
2) Remedy—corporation may recover director’s profits or force director to convey the opportunity to the corporation
Directors: Indemnification
Successful defense if director is sued and defends successfully, corp must indemnify for expenses; if unsuccessful: copy has discretion to indemnify
Officers
No titles or amount-some states 2 required president and secretary to certify corp acts and keep records.
Appointed by BOD, may be removed by board and get damages if in breach of ee contract
Authority: actual authority by BOD, articles and bylaws and apparent authority in their position and required activities
Duties: similar to directors, right to indemnify
Fundamental Corp Changes:
amendments to articles, mergers, consolidations, share exchanges
Procedure: board resolution, notice to shareholders, SH approval, article software change filed with the state
