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Corporations Flashcards

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1
Q

Corporations Statute

A

Louisiana Business Corporation Act

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2
Q

Properly Created Corporation

A

de jure corporation

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3
Q

Improperly Created Corporation

A

de facto corporation (still treated as a corporation)

*need a good faith attempt to incorporate

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4
Q

Requirements to Form

A

(1) articles of incorporation
(2) affidavit of acceptance of registered agent

filed with the Secretary of State

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5
Q

Articles of Incorporation Requirements

A

(1) name of corporation
(2) number of shares corporation is authorized to issue
(3) street address of corporation’s initial registered office (if different, initial principal office)
(4) name and address of registered agent
(5) whether corporation accepts, rejects, or limits LA’s limited liability for directors and officers
(6) name and address of each incorporator

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6
Q

Ultra Vires Act

A

act beyond the stated purpose of the corporation

not required to have a stated purpose to forma corporation, automatic presumption that “formed for any lawful purpose”

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7
Q

Effect of Ultra Vires Act

A

generally enforceable, but

(1) shareholder can sue to enjoin a proposed ultra vires act
(2) corporation may sue officer/director for damages arising from commission of ultra vires act ordered by the director/officer, or
(3) state may bring an action to dissolve a corporation for an ultra vires act

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8
Q

Corporation Name

A

must include one of the following:
(1) corporation
(2) incorporated
(3) company, or
(4) limited

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9
Q

Filing of Articles

A

general rule: effective upon filing

exception: if articles state that the corporation’s existence begins when signed, date is retroactively valid SO LONG AS they are filed within 5 days of signing

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10
Q

Organizational Meeting

A

required after articles are filed to do the following:
(1) adopt bylaws
(2) elect officers
(3) transact other business

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11
Q

Bylaws vs. Articles

A

bylaws are adopted by directors but can be modified or repealed by directors OR shareholders

amendment of articles requires a vote of BOTH directors and shareholders

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12
Q

Grounds for Veil Piercing

A

(1) business has not been conducted in proper corporate form
(2) assets of the corporation have been commingled with shareholders’ personal assets
(3) corporation is undercapitalized
(4) corporation is thinly capitalized

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13
Q

Stock Certificate Requirements

A

(1) name of issuing corporation
(2) corporation is organized under the laws of LA
(3) name of the person to whom stock certificate is issued
(4) number of shares
(5) class or series of shares if applicable
(6) must be signed by the President and the Secretary or by two officers designated in the bylaws or by the board of directors

*exception for book entry system of stock trading on the public stock exchange

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14
Q

Class Stock Requirements

A

must be in the articles and state:
(1) number of shares in each class
(2) distinguishing designations for each class
(3) rights/preferences/limitations of class

*at least one class must have unlimited voting rights

*at least one class must have right to receive corp’s assets on dissolution

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15
Q

Consideration for Shares

A

any tangible or intangible property or benefit to the corporation (includes services)

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16
Q

Promoters

A

owe fiduciary duty to corporation and to each other

duty = fair disclosure and good faith

liability:
(1) breach of fiduciary duty
(2) fraud or misrepresentation, or
(3) obtaining unpaid stock

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17
Q

Liability for Preincorporation Contracts

A

Promoters - K with a 3rd party if promoter knew that corporation had not yet come into existence (but can be disclaimed by K)

Corporation - K entered into by promoter on behalf of corporation if corporation adopts/ratifies K (but promoter remains liable unless 3rd party discharges him)

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18
Q

Removal of Directors

A

with or without cause by shareholders

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19
Q

Shareholder Approval Required When…

A

(1) fundamental change to the structure of the corporation
(2) merger
(3) sale of all/substantially all of the corporation’s assets outside of the ordinary course of business
(4) dissolution
(5) amendments to the articles of incorporation

*can amend bylaws but don’t NEED shareholder approval

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20
Q

Annual Meeting

A

must be held every year, if not held for 18 months shareholder can demand a meeting by providing notice to the secretary

secretary must schedule meeting within 30 days after notice

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21
Q

Special Meeting

A

may be called by directors to get shareholder approval on something

may be called by those representing 10% of all the votes entitled to be cast

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22
Q

Notice of Meetings

A

sent to shareholders not less than 10 days nor not more than 60 days before the meeting

state date/time/place/purpose if special

waiver of notice: signed writing before or after meeting or attendance at the meeting without objection to notice

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23
Q

Proxy Duration

A

11 months unless provided otherwise

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24
Q

Proxy Revocability

A

generally revocable by shareholder

irrevocable if both:
(1) form conspicuously states irrevocability, AND
(2) coupled with an interest (creditor, employee, person who purchased shares, etc)

*death of shareholder does not affect proxy authority unless corporate officer receives notice of death before vote is taken

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25
Q

Quorum

A

majority of the votes entitled to be cast on the matter ATTEND the BEGINNING of the meeting

required for shareholder votes

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26
Q

Shareholder Vote Approval

A

need quorum + more yes votes than no votes (and vice versa)

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27
Q

Election of Directors

A

need quorum + plurality of votes (directors must just get more than anyone else, no majority required)

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28
Q

Cumulative Voting

A

OPTIONAL, MUST BE IN ARTICLES

each share gets as many votes as there are director vacancies

gives more power to minority shareholders to elect directors

ex: 1 share, 10 board vacancies. That share can vote up to 10 times, all for the same person or split up between different people

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29
Q

Unanimous Written Consent

A

shareholders can act without meeting by unanimous written consent of all shareholders entitled to vote on the action

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30
Q

Type of Shareholder Agreements

A

(1) Voting Trusts
(2) Voting Agreements
(3) Unanimous Governance Agreements
(4) Restrictions on Transfer of Shares

31
Q

Voting Trusts

A

need signed agreement and transfer of shares to the trustee AND must give copy of trust agreement to the corporation

trustee will use the shares to vote, (former) shareholders are considered beneficiaries

used for family control of corporations

32
Q

Voting Agreements

A

must be written and signed

provides for specific enforcement (to get shares to vote a certain way)

does NOT need to be filed with the corporation (c/f Voting Trusts, Unanimous Voting Agreements)

33
Q

Unanimous Voting Agreements

A

Requirements:
(1) must not be set forth in articles/bylaws
(2) be set forth in a written agreement signed by every shareholder
(3) state that it is a unanimous governance agreement
(4) be filed with the corporation

*only valid for 20 years (unless otherwise provided)

terminated when shares are listed on a national stock exchange

34
Q

Restrictions on Transfer of Shares

A

may be imposed by: articles, bylaws, agreement among shareholders, or agreement among shareholders/corporation

may be for “any reasonable purpose”

ONLY enforceable if either:
(1) restriction is noted conspicuously on the certificate, or
(ii) holder/transferee had knowledge of the restriction

35
Q

Shareholder Inspection Rights

A

Shareholders with at least 5% of any class of shares for at least the past 6 months: may inspect books, papers, accounting records, shareholder records, etc with FIVE DAYS written notice and PROPER PURPOSE

Any shareholder, regardless of purpose: can only inspect following:
(1) articles and bylaws
(2) board resolutions regarding classification of shares
(3) minutes of shareholder meetings over the past 3 years
(4) communications sent by corp to shareholders aver the past 3 years
(4) list of names and business addresses of the corp’s current directors/officers
(5) copy of the corp’s most recent annual report

*corp must prove good faith in court if it refuses an inspection

*right to inspect may not be limited by articles/bylaws

36
Q

Preemptive Rights

A

OPTIONAL, MUST BE INCLUDED IN ARTICLES

if corporation offers new stock, shareholders have the right to purchase as much of the new stock as to maintain their current voting power

doesn’t apply to abnormal stock offerings (ie: stock issued as compensation, stock with distribution preference, stock offered for consideration other than money, stock offered within first 6 months of incorporation)

37
Q

Shareholder Suit: Derivative

A

shareholder enforcing corporation claims on behalf of the corporation

Requirements:
(1) shareholder must have been a holder at the time of the act
(2) shareholder must fairly and adequately represent the interests of the corporation
(3) shareholder must make a written demand on the corporation to take action (no suit may be filed until 90 days after demand unless corporation rejects demand or irreparable injury would ensue)
(4) shareholder must prove that the decision was not made in good faith after reasonable inquiry

court may order corporation to pay plaintiff’s expenses incurred in the proceeding if it finds that the action has resulted in a substantial benefit to the corporation

38
Q

Shareholder Suit: Direct

A

shareholder enforcing their own claims against corporation

39
Q

Distributions

A

solely within directors’ discretion

shareholders have no general right to compel distribution (need a very strong case in equity)

distribution not allowed if it would cause corp to not be able to pay its debts or would cause corp to become insolvent

40
Q

Liability for Unlawful Distributions

A

shareholder who receives is liable to the corporation, regardless of knowledge

director who votes for the unlawful distribution is liable for the amount in excess of what could have lawfully been distributed
*Exception - if distribution was authorized in good faith based on financial statements prepared according to reasonable accounting practices or other fair valuation method OR by relying on information from other people (employees, etc)

41
Q

Only Things Shareholders Liable For:

A

unpaid stock

pierced corporate veil

receipt of unlawful distributions

absence of de jure corporation when shareholder had knowledge of absence

potential shareholder agreement

42
Q

Directors’ Meeting

A

no notice required for regular meetings

48 hour notice for special meetings

need a quorum, and need majority of quorum present to approve measures

43
Q

Director Deemed to Assent Unless…

A

(1) director objects at beginning of meeting
(2) director’s dissent/abstention is entered into the meeting minutes, or
(3) director delivers written notice of dissent/abstention immediately before/after meeting

44
Q

Action Taken by Directors without Meeting

A

allowed if action is taken by ALL directors with a signed consent by each that describes action taken and is delivered to corporation

45
Q

Director Limitation of Liability

A

LA law AUTOMATICALLY eliminates directors’ personal liability for money damages to the corporation/shareholders for action/failure to take action

no provision can limit/eliminate liability for:
(1) wrongful financial benefit
(2) intentionally inflicted harm on corporation/shareholders
(3) unlawful distributions
(4) intentional violation of criminal law

46
Q

Directors’ Fiduciary Duties

A

(1) duty of care
(2) duty to disclose
(3) duty of loyalty

47
Q

Directors: Duty of Care

A

Business Judgment Rule (protects poor business decisions made by directors)

(1) discharge duties in good faith
(2) discharge duties with the care that a person in a like position would reasonably believe appropriate under similar circumstances, and
(3) in a manner that the directors reasonably believe to be in the best interest of the corporation

**directors entitled to rely on information provided by corporate officers/employees/legal/accountants/board committees

48
Q

Directors: Duty to Disclose

A

duty to disclose material corporate information to other members of the board

49
Q

Directors: Duty of Loyalty

A

conflicting interest transactions (party to the transaction OR material financial interest)

*directors setting their own compensation is not a conflict of interest

Corporate Opportunity Doctrine - directors cannot divert a business opportunity from their corporation to themselves without first giving the corporation the opportunity to act

50
Q

Sanitizing Conflict of Interest Transactions

A

(1) transaction was approved by a majority of the directors/shareholders without a conflicting interest after all material facts have been disclosed to the board, or

(2) transaction was fair to the corporation at the time of the transaction

*quorum = majority of directors without a conflicting interest

51
Q

Corporate Secretary

A

only officer required that a corporate has

responsible for:
(a) preparing minutes of meetings
(b) maintaining/authenticating corporate records

52
Q

Power of an Officer

A

mandatary of the corporation (corporation = principal)

receives power from directors

53
Q

Officer Standard of Conduct

A

carry out duties:
(1) in good faith
(2) with the care that a person in a like position would reasonably exercise under similar circumstances, and
(30 in a manner they reasonably believe to be in the best interests of the corporation

54
Q

Removal of Officers

A

by corporation at any time, with or without cause

55
Q

Mandatory Indemnification

A

corporation MUST indemnify when…

director/officer who was successful in defending the proceeding against them

includes reasonable expenses and attorneys fees incurred in connection with the proceeding

56
Q

Discretionary Indemnification

A

corporation MAY indemnify when…

director/officer was unsuccessful in defending a suit, but only if:
(1) director acted in good faith, and
(2) believed that her conduct was:
(i) in the best interest of the corporation, or (conduct was within official capacity)
(ii) not opposed to the best interest of the corporation, or (conduct was not within official capacity)
(iii) not unlawful (criminal proceedings)

57
Q

Procedure for Fundamental Changes in Corporate Structure

A

(1) majority of the board adopts a resolution
(2) notice of the proposed change is sent to all shareholders (describes change and sent between 10-60 days before the meeting)
(3) change is approved by shareholders by a majority of votes entitled to be cast (NOT just a quorum, must be an actual majority of all shareholders to approve)
(4) change is formalized in articles and filed with the state

58
Q

Types of Fundamental Change in Corporate Structure

A

(a) amendments to articles
(b) mergers
(c) share exchanges
(d) dispositions of substantially all property outside of the ordinary course of business

59
Q

Disposition of Property Outside of the Ordinary Course of Business

A

sale of more than 75% of corporation’s assets that also account for over 75% of corporation’s revenues

60
Q

Dissenting Shareholders’ Appraisal Remedy: Shareholders Entitled to Vote

A

(a) shareholders entitled to vote on a plan of merger
(b) shareholders whose shares are being ACQUIRED in a share exchange have the right to dissent
(c) shareholder entitled to vote on the disposition of all/substantially all of the corporations’ property outside of the ordinary course of business

*shareholders NOT entitled if company’s shares are trading on the national stock exchange (think big corps)

61
Q

Procedure for Dissening Shareholders

A

(1) corporation must give shareholders notice of a shareholders meeting and what the vote will entail (or simply notice if action does not require vote)
(2) shareholder must give WRITTEN notice of intent to demand payment BEFORE vote is taken
(3) corporation must give dissenters notice if proposed action is approved within 10 days after the vote (including terms of repurchase of shares)
(4) shareholder who gets dissenters notice must file demand payment
(5) corporation must paid fair value of shares as estimated by the corporation
(6) if shareholder is dissatisfied with amount, shareholder must send corporation their own estimation of value within 30 days and demand payment of that amount
(7) if corporation does not file an action in court within 60 days, they are required to pay shareholder revised value; if corporation does file action, they must request court to determine fair value

62
Q

Voluntary Dissolution

A

use procedure for fundamental corporate change (need both shareholders and directors)

63
Q

Effect of Dissolution

A

corporation continues corporate existence to wind up and liquidate affairs

64
Q

Revocation of Voluntary Dissolution

A

must occur within 120 days of effective date of termination

revocation relates back and takes effect as of the date of dissolution

65
Q

Administrative Termination

A

state can bring an action to administratively terminate a corporation for:
(1) failure to deliver annual report within 90 days of day it is due, or
(2) failure to maintain a registered agent in the state for 90 days or more

state files articles of termination

66
Q

Reinstatement after Termination

A

corporation can apply for reinstatement within 3 years of effective date of termination

67
Q

Judicial Dissolution: Attorney General

A

attorney general can seek dissolution if:
(1) corporation fraudulently obtained its articles, or
(2) corporation is exceeding or abusing its authority (ultra vires)

68
Q

Judicial Dissolution: Shareholders

A

(1) directors are deadlocked and irreparable injury to the corporation is threatened
(2) shareholders are deadlocked and have failed to elect one or more directors for two or more annual meetings
(3) corporation has abandoned its business and failed to dissolve within a reasonable time

69
Q

Judicial Dissolution: Creditors

A

(1) creditor’s claim has been reduced to judgement and corporation is insolvent, or
(2) corporation has admitted it owes a debt to the creditor and the corporation is insolvent

70
Q

Shareholder Oppression

A

shareholder can force corporation to buy all of its shares at fair value if oppressive conduct against the shareholder occurs

oppression = corporation’s practice, as considered as a whole over a period of time, is plainly incompatible with a genuine effort on the part of the corporation to deal fairly and in good faith with the shareholder

71
Q

Foreign LLCs

A

need certificate of authority to “transact business” in LA

72
Q

Amendment to Articles of Incorporation

A

requires approval by a majority of shareholder votes ENTITLED TO BE CAST, regardless of how many shareholders vote

this can be stricter, but cannot be loosened by the articles of incorporation

73
Q

What happens if a corporation has failed to file its annual report, and the report is 150 days past due? How can this be fixed?

A

the Secretary of State can terminate the existence of a corporation that has failed to file an annual report for 90 days. it does this by giving the corporation a 30 day notice of termination, and then by filing a certificate of termination. this is called administrative termination.

After a corporation has been terminated, its juridical personality ceases to exist except for three things: 1) reservation of the corporation’s name, and 2) concluding any proceeding to which the corporation is a party to at the time of termination, and 3) continuing to own any undistributed corporate assets and owe any unpaid liabilities.

Assuming the certificate of termination has already been filed, the corporation must file articles of reinstatement with the Secretary of State within 3 years of the effective date of termination. If this is done successfully, the reinstatement is retroactive to the date of termination.

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