Corporations Flashcards
Are directors entitled to notice of a special meeting, and if so, what is required for notice to be proper?
Priority: Medium
Directors are entitled to notice of a special meeting.
Unless the articles of incorporation provide otherwise, notice must be provided at least two days prior to the meeting and should state the date, time, and place of the meeting.
The notice does not need to describe the purpose of the special meeting.
How does a director waive notice of a special meeting?
Priority: Medium
A director may waive notice in a signed writing.
Waiver also occurs if the director attends the meeting, unless the director promptly objects to lack of notice and does not vote in the meeting.
What is the quorum requirement for a board of directors?
Priority: Medium
For the board of directors’ acts at a meeting to be valid, a quorum of directors must be present. A majority of the directors are necessary to make a quorum, unless the articles of incorporation require a higher or lower number.
A quorum must be present at the time a vote is taken.
Does a board member need to be physically present to participate in a vote?
Priority: Medium
The board of directors may permit any director to participate in meetings by any means of communication, but all directors participating must be able to simultaneously hear each other during the meeting.
If a director cannot hear every other director, they are not legally present and unable to vote.
If a quorum of directors is present, how many votes are necessary for an act to be approved?
Priority: Medium
Typically, an act is approved by the AFFIRMATIVE VOTE OF A MAJORITY OF DIRECTORS PRESENT unless the articles of incorporation or bylaws require a greater number.
Describe a director’s duty of loyalty.
Priority: High
Directors of a corporation have a duty of loyalty to act without personal conflict and in a manner that the director reasonably believes is in the best interest of the corporation.
How does a director breach the duty of loyalty?
Priority: Medium
A director breaches the duty of loyalty by placing their own interest before those of the corporation.
If a director profits at the corporation’s expense, it is a breach of the duty of loyalty.
What defenses does a director have when they breach the duty of loyalty with a self-dealing transaction?
Priority: Medium
A director who breaches their duty of loyalty has three safe harbor defenses: approval by disinterested directors, approval by shareholders, or fairness.
What is necessary for a director who breached their duty of loyalty to assert a defense of approval by directors or shareholders?
Priority: Medium
A director is protected from liability if they made a disclosure of all material facts to the disinterested board of directors or shareholders and the majority of the board or shareholders approved the transaction.
When is a director protected from a breach of their duty of loyalty by fairness?
Priority: Medium
A director is protected from liability if they could provide proof that the transaction was fair at the time of commencement.
(Fairness exists when the TERMS/PRICE WERE COMPARABLE to what the corporation would receive in an arm’s length transaction; (2) the transaction as a whole was BENEFICIAL to the corporation; and (3) it was FAIR IN TERMS OF THE DIRECTORS DEALINGS with the corporation.)
Describe a director’s duty of care.
Priority: High
Directors must act in good faith, in a manner the director reasonably believes to be in the best interests of the corporation, and with the care of an ordinary person in a like position and similar circumstances.
This duty includes being reasonably informed before making a business decision.
(Formerly business judgment rule)
How are directors protected by the business judgment rule?
Priority: High
Directors are protected by the business judgment rule which presumes that in making a business decision, the directors of a corporation acted in the best interests of the corporation.
The party attacking a board decision must rebut the presumption that its business judgment was an informed decision.
How is a corporation formed?
Priority: High
In order to form a corporation, articles of incorporation must be filed with the state.
What do articles of incorporation need to include to be valid?
Priority: Medium
The articles must include the corporate name, the number of shares the corporation is authorized to issue, the address of the initial office and the name of its initial agent, and the name and address of each incorporator.
When does a corporation come into existence?
Priority: Medium
Unless a delayed date is specified in the articles of incorporation, the corporate existence begins when the articles are properly filed.
What happens when the statutory requirements for incorporation are met?
Priority: Medium
When all of the statutory requirements for incorporatoin have been satisfied, a de jure corporation is created.
Consequently, the corporation, rather than persons associated with the corporation, is liable for any contracts or obligations.
When corporate formation is defective, what happens, and what is an owners liability?
Priority: Low
If corporate formation is defective, the entity is treated as a general partnership. And the owners will be personally liable for all obligations of the patnership.
(A partnership is an association of two or more persons to carry on a for-profit business as co-owners)
When may a person escape personal liability for defective incorporation?
Priority: Low
When a person makes an unsuccessful effort to comply with the incorporation requirements, that person may be able to escape personal liability under either the de facto corporation doctrine or the corporation by estoppel doctrine.
