Corporations Flashcards
1
Q
The main players in corporation law
A
- Shareholders
- Directors
- Officers
2
Q
Creation of a Corporation
A
- one or more corporators
- articles of corporation
3.
3
Q
What does a corporator do?
A
Executes the articles and delivers them the SOS
a person or an entity
4
Q
Req of Articles of Corp
A
- Corporation name (must include Corp, Company, Inc, or Limited)
- Name + Address of Corporators
- Name of the Registered Agent + Address of the Registered Office (must be in state of incorporation)
- # of authorized shares (authorized stock)
5
Q
When Does Corporate Existence Begin?
A
When articles filed by state
Promoters generally liable for preincorporation contracts but Corporation not liable unless it adopts
6
Q
Defects in Formation
A person who purports to act on behalf of a corporation knowing there was no valid incorporation is:
A
personally liable unless its a de facto corporation
7
Q
A de facto corporation is one that has:
A
a. Colorable compliance with the incorporation statute; and
b. Exercise of corporate privileges
8
Q
Corporation by estoppel occurs when:
A
people treating business as valid corporation are estopped from denying corporation’s existence
9
Q
Where no corporation recognized, only those who acted _____ will be held liable;
A
on behalf of the business
passive investors not liable
10
Q
Piercing the Corp Veil (onyl for Close Corps)
Under the alter ego doctrine, a ct will piece the corp veil if harm was caused to third parties on the grounds that:
A
1) Owners do not treat corporation as a separate entity
2) Commingle personal and corporate funds
3) Use corporate assets for personal purposes
4) Owners do not hold meetings
11
Q
Piercing the Corp Vel (only for Close Corps)
Must start corporation with sufficient unencumbered capital to meet its prospective liabilities
A
Court may pierce corp veil
12
Q
A corp cannot be formed to avoid exisitng liabilites but it can be formed to:
A
limit future liabilities
13
Q
If the court pierces the veil, who is liable?
A
only active shareholders liable
. Generally liable only for tort obligations
14
Q
___ create debtor-creditor relationship
A
Debt securities (bonds)
15
Q
___ create ownership interest
A
Equity securities (stocks)
16
Q
Authorized but unissued shares are ___
A
described in the articles but not currently issued
17
Q
Issued and outstanding shares are ___
A
shares sold to investors
18
Q
Treasury shares are ___
A
former name for shares repurchased by corporation; now called authorized but unissued shares
19
Q
A __ is a written agreement to purchase shares from a corporation
A
Subscription agreement
20
Q
Preincorporation subscription agreements are irrevocable for ___
A
six months UNLESS:
1. provided in the terms of the subscription agreemen or
2. all subscribers consent to revocation
21
Q
T/F: Generally shareholders do not run corporation on a day-to-day basis
A
True
Exception: Closely held corporation may dispense with board by shareholders’ agreement and run corporation through a different scheme
22
Q
Shareholders indirectly control corporation by:
A
- electing directors,
- amending
bylaws, and - approving fundamental changes
23
Q
Record Shareholders
Shareholders of record on the record date have a right to vote:
A
1) At the annual meeting to elect directors
2) Regarding fundamental corporate changes
24
Q
Notice of meetings must be given to shareholders by providing:
A
- annual meeting - date, time, location
- special meeting - date, time, location, purpose
25
Can improper notice be waived?
Yes by attendance w/o complaint
26
A proxy vote is valid for:
11 months
27
A proxy vote is generally revocable unless:
they specifically provide otherwise and are coupled
with an interest
28
A proxy vote may be revoked by:
1. attendance or
2. later appointment
29
Under federal law, proxy solicitaions must:
fully and fairly disclose all material facts
30
Under federal law, material misstatements and fraud in connection with a proxy solicitation are prohibited
Materiality—a reasonable shareholder would consider it important in deciding how to vote
31
A ___ is a majority of the outstanding voting shares that must be present for valid a vote
Quorum
32
Under the ____, if quorum present, action approved if votes cast in favor exceed votescast against
MCBA
33
Cumulative voting
shareholder can vote shares owned x number of directors being elected; can cast all votes for one candidate or split
34
# Inspection Rights
Sharholders have a limited right to inspect:
books, papers, accounting records, etc.
| must provide 5 days written notice + proper puporse related to SH rights
35
# Inspection Rights
Shareholders have an unqualifed right to inspect:
articles and bylaws, minutes of shareholder meetings, names and addresses of current directors, and recent annual reports
36
# Shareholder Suits
A sharholder suit can either be:
Direct or derivative
37
# Shareholder Suits
A __ suit is to enforce the right of a shareholder
Direct
38
# Shareholder Suits
A ___ suit is to enforce the right belonging to the corporation
Derivative
## Footnote
if the corp could have brought the suit, its a derivative suit
39
# Shareholder Suits
In order to maintain a derivative suit, a shareholder must:
1. have owned shares at time of wrong
2. maintain ownership throughout suit
3. demand board to bring suit (unless futitle in some states)
40
A dismissal of a suit can occur when:
a majority of directors with no personal interest determine in good faith
that suit is not in best interests of corporation
41
Recovery in a direct suit goes to:
the shareholder
42
Recovery in a derivative suit goes to:
the corp
43
Generally are in the form of:
1. dividends or
2. assets after dissolution
## Footnote
No right to receive unless/until declared by board
44
# Insolvency limitation on distributions
There will be no distribution if:
1) Corporation unable to pay its debts as they become due
2) Total assets are less than total liabilities
45
T/F: Director who votes for an unlawful distribution is personally liable for the
excess
True
46
Director may seek ____ from other directors who voted for distribution
contribution
47
Directors may recover from a shareholder who received a distribution
knowing:
it was unlawful
48
What is the good faith defense to unlawful distributions?
Shareholder may rely on accountants or reliable officers and employees who indicate distribution is lawful
49
What are a shareholder's liabilities?
Shareholders not fiduciaries—may act in self-interest
## Footnote
Exception—controlling shareholder cannot use control to obtain a special advantage at the expense of the minority shareholders
50
(Directors/Shareholders) must attend meetins in person and no proxies are allowed
Directors
51
Do directors need notice for meetings?
No notice required for regular meetings
2 day notice required for special meetings (time, date, location)
## Footnote
Quorum of directors must be present at time vote is taken
52
___ may exercise authortity given to them by board
Executive commitess
| Comprised of two or more directors (in most states)
## Footnote
Exceptions: In most states committees may not declare distributions, fill board vacancies, or amend the bylaws
53
The ___ generally protects directors from personal liability to corporation/shareholder
Business Judgment Rule
54
What are the requirements for the BJR to be enforced?
1. director acting in good faith
2. with the care that a person in like position would exercise and
3. in a manner reasonably believed to be in the best interests of the corp
55
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
56
What is the reasonable reliance defense?
A dir. may defend suits w/ a claim of reasonable reliance on opinions, reports, prepated by experts or reliable employees
57
A director has a duty to prevent corporate:
Waste
58
A director owes the duty of loyalty to the corporation which means:
No self-dealing without disclosure and approval
59
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
60
Under the corp. opportunity doctrine, A director may not divert to himself a business opportunity within the
corporation’s line of business without:
first giving the corp an opportunity to act aka usupation
61
What is the remedy for the corporate opportunity doctrine?
corporation may recover director’s profits or force director to convey the opportunity to the corporation
62
If director is sued as a director and successfully defends, corporation must ____ for expenses
indemnify
63
If director is unsuccessful in defending, corporation has discretion to indemnify if:
the director complied with the business judgment rule standards
## Footnote
Exceptions: Director is found liable to the corporation or received an improper benefit
64
Officers are appointed and may be removed by:
Board of Dir.
## Footnote
If removal is in breach of contract, officer entitled to damages
65
Officers have ____ given by the board, articles, and bylaws
actual authority
66
Officers have ____ to do whatever someone in their position would
normally have authority to do
apparent authority
67
General Procedure for corporate changes
1. Board resolution
2. Notice to shareholders
3. Shareholder approval
4. Articles of the change filed with the state
68
A merger of corporations must be approved by:
directors and shareholders of both corporations
69
# [](http://)
Shareholders who do not like a fundamental corporate change may force the corporation to purchase their shares at a fair price if they:
1. Give corporation notice of intent to demand appraisal rights before vote is taken
2. Do not vote in favor of the change
3. Demand payment after the change is approved
70
Upon dissolution, the corporate existence continue, but a corporation is not allowed to carry on any business except:
business appropriate to
winding up and liquidating its affairs
71
The state may bring an action to administratively dissolve a corporation for reasons such as:
the failure to pay fees or penalties, failure to file an annual report, and failure to maintain a registered agent in the state
72
The attorney general may seek judicial dissolution on the ground that the corporation:
1. fraudulently obtained its articles of incorporation or
2. that the corporation is
exceeding or abusing its authority
73
Creditors may seek judicial dissolution if:
a. The corporation has admitted in writing that the creditor’s claim is due and owing and the corporation is insolvent or
b. The creditor’s claim has been reduced to judgment, execution of the judgment
has been returned unsatisfied, and the corporation is insolvent
74
Implied adoption occurs when the corporation:
enjoys the benefits of the contract
## Footnote
Promoter liable for pre incorporation contracts unless there is a novation
75
The promoter will be released from liability only if there is an express or implied ___
Novation- an agreement among all three parties (promoer, corporation, other K party) to release the promoter from liability and subsitute the corp for the promoter in the K
76
___ transacting business in a state must register and pay fees
Foreign Corporations
## Footnote
doesnt mean another country, can be different states
77
# Foreign Corporations
Tranasacting business means the:
regular course of intra state business activity
78
# 5 Fact Patterns in Corp Law
Formation of Corporation
Issuance of stock
DIrectors and Officers
Shareholders
Fundamental corp changes
79
The holder of a debt security is a ___, not an owner
Creditor
80
The holder of stock is an ___ not a creditor
Stock
81
When a corp sells its own stock, its called an ___
Issuance
82
Under the MBCA, stock may be issued for:
any tangible or intangigle property or benefit to the corporation
## Footnote
money, property, services already performed for the corp and discharge of a debt
83
___ means minimum issuance price
Par value
84
"no par" means:
there is no minimum issue price
85
Watered stock is when par value stock is:
issued for less than its par value
86
A _ is the right of an existing shareholder of common stock to mainatain her % of owenership in the company by buying stock whenever there is a new issuance of stock **for money **
preemptive right
## Footnote
Must be provided for in the AOC
87
# Directors and Officers
Requirements for Directors
1. adult natural persons
2. one or more
3. initial dir named in AOI/elected by incorporators
4. shareholders elect thereafter
88
# Directors and Officers
Shareholders can hire and fire ____ before their term expires
Directors
89
T/F: Directors are removable with or without cause
True
90
The BOD must act as a:
Group
## Footnote
Individ directors cannot bind the corporation
91
How does the board "act"?
1. unanimous agreement in writing
2. at a meeting that satifies quorum requirements
92
What is directors agree to act without an agreement or a meeting?
That act is void unless ratifies by a valid act (writing or meeting)
93
Method for giving notice of meeting is governed by:
the bylaws
94
(Directors/Shareholders) can vote by proxy
Only shareholders
95
A quorum is a ___ of all ____
Majority
Directors
96
Director must have the duty of:
1. loyalty
2. care
97
Under the duty of loyalty, a director must act:
in good faith with the reasonable belief that her actions are in the best interest of the corp.
| Business Judgment Rules will not apply in duty of loyalty cases
98
Under the duty of care, a director must:
act as a prudent person would act under similar circumstances
99
Who has the Burden of Proof in breach of duty of CARE cases?
The person challening the dir. actions
100
Duty of care can come up in two ways
1. nonfeasance (lazy director)
2. Misfeasance (when the board makes a decsion that hurts the business)
101
Who has the burden of proof in breach of duty of loyalty caases?
The defendant
102
Duty of loyalty cases are mostly about:
Conflicts of interest
103
A conflicting interest transaction will be upheld if:
1. it was approved by a majority if the disinterested directors who knew of all material facts
2. it was apporoved by a majority of votes entitled to be cast by disintered shareholders who knew of all material facts
3. it was fair to the corporation
104
In order to vote on a conflicting interest, a quorom will be considered to be:
a majority (at least two) of disinterested directors
105
3 main issues in duty of loyalty
self dealing
competing venutes
corp opportnuty
106
Directors also have a duty to ___ material corp info the other members of the board
Disclose
107
A corporation can make a loan to a director if:
it is reasonable expected to benefit the corp
108
A director is presumed to concur w/ board action unless:
dissent/abstention is noted in witing in corp records
## Footnote
Oral dissent is not effective on its own
109
Officers are ___ of the corporation
Agents
Need actual or apparent to bind principal (corporation)
110
# Category 1
A corp cannot indeminfy a director who:
1. is held liable to the corp
2. held to have recvied an improper benfire
111
When analyzing indemnification, there are 3 different categories:
1. no indemnification
2. mandatory indemnification
3. permissive indemnification
112
# Category 2
A corp must indemnify a diretor of officer who:
was successful indefending a proceeding on the merits
entitled to the extent that they win the case
113
# Category 3
A corporation may indemnify a director for reasonable litigation expeses incurred in an unseccuesful suit if the director:
1. acted in good faith
2. believed their conduct was in best interest of corp
## Footnote
Category 3 is a catchall
114
Articles can eliminate director/officer liable only for duty of ___ cases
Care
115
Elements of a Closely Held Corporation
1. Small # of shareholders
2. stock not publicaly traded
3. shareholders can manage directly
116
Shareholders owe ____ to other shareholders
Fidcuciary duties
117
Piercing the corporate veil can only happen in:
Close corporations
118
To pierce the corp veil, it must be shown that
1. shareholdes abused the privilege of incorporating
2. fairness must require holding them liable
119
Shareholders are not liable for the acts of the ____
Corporation
120
Say this for PTCV hypos
Cts are more likely to PTCV in a tort case than in a contract case
121
___ is the max number of shares a corp can sell
Authorized
122
Shareholders of record on the ___ may vote at the meeting
Record date
## Footnote
RD is fixed by the BOD but may not be more than 70 days before the meeting.
123
3 Exceptions to the GR that the record owner on the record date is the one who votes:
1. treasury stock
2. death of shareholder
3. voting by proxy
124
A proxy is a ___, signed by the ___, directred to the _____, authotizing another to vote the___
1. writing
2. record sharehlder
3. secretary of the corp
4. shares
125
A voting trust is a written agreement of SH under which all of the shares owned by the parties to the agreement are transferred to a trustee
1. written agreement
2. copy of the agreement given to the corp
3. legal title to the shares is transferred to the voting trustee
4. the original sharehold receive trust certificates and retain all shareholder rights except for voting
## Footnote
duration of 15 years and renewable
126
Rather than creating a trust, shareholders can enter into:
Voting agreement
Must be a written and signed agreement. lasts for 15 years and its renewable
127
Shareholders do not remove ____
Officers
(the board hires and fires officers)
128
Any action taken at a meeting w/o giving notice to shareholders will be:
void or voidabe
129
Shareholders can vote on:
electing/removing directors
fundamental corp changes
130
# Shareholder Voting
of shares is more important thatn # of people
just fyi
131
With cumulative voting, you dont vote seat by seat
You have 1 vote and the top votes get the seat
## Footnote
Number of shares X # of directors to be elected
132
T/F: A SH can sell or give her stock away
True
133
Stock transfer restrictions are ok if they are:
Not an undue restraint of alienation
134
A __ is a payment from corp to SHs
Distributions
1 dividends
2. repurchase
3. redemption (forced sale to corp at price set in articles)
135
Preferred means:
pay first
136
Insolvent means
1. unable to pay debts as they come due or
2. total assets < total assets
137
Any distribtuion will be improper if:
corp is insolvent.
Directors are J&S liabile for improper distribution
138
A shareholder will be liable for an improper distribtution if:
only if they knew the distributin was improper when they received it
139
Requirements for a Fundamental Corp Change
1. board action
2. written notice to shareholders
3. shareholder vote (majority of shares entitled to vote)
4. deliver doc to SOS if vote goes through
140
# Only in Close Corps
What is the Dissenting SH's right of appraisal?
Right to force corp to buy stock at fair value
only triggered by:
1. merging/consolidation
2. /stock being acuqired
3. converting to another form of business
4. transferring substantially all assets
141
To amend the AOI, you need:
1. action
2. notice
3. approval
142
Requriements for fundamental corp changes only apply to the:
Selling corp only
143
5 Step process of winding up
1. winding up
2. gather case
3. liquidate assets
4. pay CREDITORS
5. Distribute any remaing $$ to SH (pro rate by share unless liquidation preference)
144
# BJR GR
Under the Business Judgment Rule, a director's decisions may not be challenged if a director:
1. acts in good faith
2. with the care that a person would exercise in a like position
3. in a manner reasonably believed to be in the best interest of the corporation
## Footnote
ask yourself, would a reasonable director act this way/ rely on this type of informatino, etc
145
If a director engages in a transaction that conflicts w/ the interest of the corp, it may be set aside if: 1. the dir disclosed ___ facts to to disinterested board members or sharehoders and they approve or the transaction was ______
Material
Fair
146
An exculpatory provision in the articles of corporation may limit or eliminate director's personal liability unless the director:
## Footnote
it wont be called an exculpatory prpvision on the exam, just look for a provsiion that limits liability or "exculpatates"
1. recieved a benefit they were not entitled to
2.intentionally harmed corp or SHs
3. approved unlawful distribution
4. intentionally committed a crime
## Footnote
wont be protected by provision if they violate 1 of the 4 above
147
T/F: BJR will not protect a director who has a personal interest in a transaction
True
