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Corporations Flashcards

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1
Q

What is a de jure corporation?

A

Incorporator validly complies with the requirements of state incorporation laws

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2
Q

The articles of incorporation should list the maximum number of shares that __________.

A

A corporation is authorized to issue

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3
Q

To be a valid corporation, articles of incorporation must include:

A
  1. Number of authorized shares
  2. Purpose
  3. Address of the corporation’s initial registered office
  4. Name of registered agent
  5. Name of incorporation
  6. Name of corporation
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4
Q

A corporation may only engage in activities which ________.

A

Fall within the stated business purpose in its articles of incorporation

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5
Q

If there is no statement of purpose, what is the default purpose of a corporation?

A

Purpose of engaging in any lawful business

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6
Q

General corporations of perpetual ______ are valid.

A

Duration

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7
Q

What is the ultra vires doctrine?

A

When a corporation has a narrow business purpose, activity beyond that purpose is unenforceable

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8
Q

______ may sue to enjoin ultra vires activity.

A

Shareholder

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9
Q

___________ and ________ who enter into an ultra vires transaction can be held personally liable by the corporation for losses caused by the ultra vires activities

A

Directors

Officers

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10
Q

A state may _________ to dissolve a corporation for committing an ultra vires act.

A

bring an action

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11
Q

A corporation’s name must indicate _______.

A

Corporate status

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12
Q

Unless a delayed effective date is specified, the corporate existence begins when ________.

A

The articles are filed

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13
Q

The Secretary of State’s filing of the articles of incorporation is conclusive proof that ___________.

A

The incorporators satisfied all conditions precedent to incorporation

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14
Q

The Secretary of State’s filing of the articles of incorporation is conclusive proof that the incorporators satisfied all conditions precedent to incorporation unless:

A

In a proceeding by the state to:
1. cancel/revoke the incorporation OR
2. involuntarily dissolve the corporation

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15
Q

A corporation’s initial bylaws may contain:

A

Any provision for:
1. Managing the business AND
2. Regulating the affairs of the corporation
…that is consistent with the law/articles of incorporation

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16
Q

A de facto corporation may be found where:

A
  1. There is a valid general corporation law
  2. The incorporation made a colorable good-faith attempt to comply with the statute
  3. The incorporator wasn’t aware that the attempt to comply with the statute was invalid AND
  4. Corporation took some action indicating that it is considered itself a corporation
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17
Q

A de facto corporation has all the rights and powers of ______ corporation.

A

De jure

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18
Q

What are the requirements of a de facto corporation?

A
  1. Valid corporation law
  2. Colorable good faith attempt to comply
  3. Unaware that attempt was invalid AND
  4. Corporate action
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19
Q

De facto corporations do protect shareholders from personal liability, these corporations are vulnerable to _________ proceedings brought by the state that can dissolve de facto corporations.

A

quo warranto proceedings

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20
Q

Corporation by estoppel does not apply to _____.

A

Tort victims

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21
Q

Corporation by estoppel results when:

A

A corporation:
1. Holds itself out to the public as a corporation
2. Acts as such
3. Enters into contracts under that banner
…but is not actually a corporation at the time

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22
Q

A corporation by estoppel is estopped from ___________.

A

Claiming that it was not a corporation when it entered into those contract

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23
Q

If a person deals with an invalid corporation believing it was a validly formed corporation, then that person is estopped from ________.

A

Attacking corporate existence

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24
Q

Corporations are considered “domestic” corporations only where?

A

In the state of incorporation

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25
Q

In all states other than the one in which it is incorporated, a corporation is considered __________.

A

A foreign corporation

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26
Q

A foreign corporation doesn’t have authority to conduct business in another states unless ___________.

A

It obtains a certificate of authority from that state’s secretary of state

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27
Q

In terms of standing, what does it mean that a corporation fails to obtain a certificate of authority in a foreign state?

A

It cannot sue; it can still BE sued

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28
Q

If properly formed, the corporation becomes a separate legal entity empowered to _______. It is also now ________.

A

Enter into its own contracts

Liable for its own debt

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29
Q

Corporate status provides limited liability for _________.

A

Shareholders

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30
Q

Shareholders are not personally liable for _____ or ______ of the corporation.

A

Debts

Obligations

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31
Q

The corporate form will be ignored by courts in some circumstances to avoid _____ and _____.

A

Fraud

Unfairness

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32
Q

The corporate veil can only be pierced against corporate shareholders, not _________.

A

Passive investors who acted in good faith.

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33
Q

Even if a corporation’s shareholders have abused the corporate form, a court will not pierce the corporate veil unless ______ requires it.

A

Justice

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34
Q

Courts are generally more willing to pierce the corporate veil for the benefit of _____ creditors than ______ creditors.

A

Tort

Contract

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35
Q

What are the main theories for piercing the corporate veil?

A
  1. Fraud or avoidance of existing obligations
  2. Undercapitalization
  3. Alter ego
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36
Q

What is the fraud or avoidance of existing obligation theory for piercing the corporate veil?

A

Corporate veil may be pierced when necessary to prevent
1. Fraud
2. A shareholder from using the corporate form to avoid personal obligations

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37
Q

What is the undercapitalization theory for piercing the corporate veil?

A

Inadequate capitalization is determined by looking at whether a corporation had adequate funds to meet its prospective liabilities at time of formation.

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38
Q

When is a corporation an alter ego>

A

Where there is a serious lack of corporate formalities

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39
Q

What is the doctrine of double taxation?

A

A corporation is considered a separate entity that is distinct from its owners and thus is taxed like one.

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40
Q

Being an S corporation means _______.

A

The corporation may be taxed like a partnership

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41
Q

What are the requirements for an S corporation?

A
  1. Max 100 shareholders
  2. One class of stock AND
  3. Shareholders must be individual
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42
Q

What does LLC stand for?

A

Limited liability corporation

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43
Q

What is a limited liability corporation?

A

Limited liability of a corporation combined with favorable partnership tax treatment

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44
Q

How many owners may there be for an LLC?

A

No limit

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45
Q

What are the formalities of an LLC?

A
  1. Must file articles of organization
  2. May adopt operating agreement
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46
Q

The articles of an LLC must include the following:

A
  1. Statement that entity is LLC
  2. Name of the LLC
  3. Address of registered office
  4. Name of registered agent
  5. Names of all members
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47
Q

Profits and losses are allocated in an LLC on what basis?

A

Member’s contributions to the LLC

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48
Q

Who manages an LLC?

A

Presumably, all members

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49
Q

Managers of an LLC owe the company duties of ____ and ____.

A

Care
Loyalty

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50
Q

Are members/owners personally liable for the debts/obligations of an LLC?

A

No

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51
Q

An LLC is taxed like ________.

A

A partnership

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52
Q

What is the limited liquidity concept of LLCs?

A
  1. Assignment only assigns member’s right to profits and losses, not general losses.
  2. Member interests are not freely transferable
  3. Consent of all members ie required for new members
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53
Q

Dissolution of an LLC requires __________.

A

Consent of all members of an LLC

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54
Q

Does the dissociation of an LLC member result in the LLC’s dissolution?

A

No

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55
Q

What are professional corporations?

A

Corporation of licensed professionals

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56
Q

What professions may apply for professional corporations?

A
  1. Architects
  2. Attorneys
  3. CPAs
  4. Engineers
  5. Medical professionals
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57
Q

What are the filing requirements for a professional corporation?

A
  1. Articles of incorporation
  2. Purpose is to render professional services
  3. Shareholders must be licensed professionals
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58
Q

A professional corporation must include what in the title?

A

Either:
1. Professional coporation
2. Professional association
3. Service corporation
4. PC
5. PA
6. SC

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59
Q

How many corporations may be practiced by a professional corporation?

A

Only one

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60
Q

A professional in a professional corporation remains personally liable for _____________.

A

Own malpractice/misconduct while providing professional services

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61
Q

A shareholder in a professional corporation will not be personally liable for the ______ of their fellow shareholders.

A

Malpractice

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62
Q

A close corporation is entitled to _______

A

Operate without the strict formalities normally required for corporate conduct

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63
Q

Shares in a close corporation are subject to restrictions related to __________.

A

Resale

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64
Q

In a close corporation, _________ are key instruments used to protect minority shareholders.

A

Shareholder agreements

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65
Q

The purpose of shareholder agreements in close corporations is to ________.

A

Give the minority shareholder the ability to participate in the management or decision-making process of the corporation

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66
Q

Close corporation shareholder agreements typically contain buy-sell provisions that ________.

A

Give existing shareholders first rights of refusal with respect to subsequent sales or transfers of shares

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67
Q

All persons purporting to act as or on behalf of a corporation, knowing __________, are jointly and severely liable for all liabilities created while so acting

A

There was no incorporation under the RMBCA

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68
Q

Who is a promoter?

A

Person/thing acting on behalf of a corporation not yet formed

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69
Q

A promoter is a fiduciary of _____ and _____.

A

The corporation

Other promoters

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70
Q

When a corporation has multiple promoters, the promoters are considered __________ and thus have _________.

A

Joint venturers

Fiduciary duty to one another

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71
Q

Promoters breach their fiduciary duty to other promoters if ________.

A

They secretly pursue personal gains at the expense of other promoters and the coroporation

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72
Q

What is the secret profit rule?

A

Promoters may not secretly profit from transactions with/on behalf of the corporation

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73
Q

A corporation may recover any profit made by a promoter while _________.

A

Acting as a promoter.

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74
Q

If property sold to corporation is acquired before someone becomes a promoter, the profit is recoverable by the corporation only if ________.

A

The property was sold for more than its fair market value

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75
Q

If property sold to corporation is acquired after someone becomes a promoter, the profit is recoverable by the corporation only if ________.

A

…actually, it’s always recoverable in this situation.

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76
Q

Until such time as a corporation ______ and ________, it does not have a separate legal existence and cannot enter contractual obligations.

A

Complies with all formalities of incorporation

Files its articles of incorporation

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77
Q

A corporation is liable on a promoter’s pre-incorporation contract when the corporation adopts the contract by either ____ or _____ adoption

A

Express

Implied

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78
Q

Express adoption occurs via _______

A

Express board of director’s resolution

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79
Q

Implied adoption occurs via:

A
  1. Knowledge of contract AND
  2. Acceptance of benefits without protest
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80
Q

What effect does adoption have on a promoter’s liability?

A

Mere adoption by the corporation doesn’t relieve promoter of liability

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81
Q

A promoter remains personally liable on a pre-incorporation contract unless:

A
  1. Novation
  2. Lack of liability in contract
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82
Q

If _______ is never formed, there cannot be a subsequent novation.

A

Corporation

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83
Q

What is novation?

A

All parties agree to substitute the corporation for the promoters as the party liable for the contract

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84
Q

What happens to a promoter’s liability if there is adoption of a corporation but no novation?

A

Promoter remains liable for pre-incorporation contracts

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85
Q

Who is a subscriber?

A

Person/entity who offers to buy stock in a corporation not yet formed

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86
Q

A subscription agreement entered into after incorporation is a contract between _____ and _____.

A

Subscriber

Corporation

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87
Q

An offer to purchase stock in a corporation not yet formed must be held open for _______.

A

6 months

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88
Q

Unless specified in a subscription agreement, _________ may determine the payment terms of subscription for shares that were entered into before incorporation

A

The board of directors

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89
Q

Payment for subscription is due upon __________.

A

Demand by board

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90
Q

In subscription, a call for payment by the board cannot be ________

A

Discriminatory

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91
Q

If a subscriber defaults in payment, the corporation may ________.

A

Collect the amount owed as any other debt

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92
Q

If a subscriber defaults in payment, what can a corporation do 20 days after corporation sends written demand for payment?

A

Corporation may
1. Rescind the agreement AND
2. Sell the shares

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93
Q

Who is an incorporator?

A

Person/entity who signs and files the articles of incorporation with the state

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94
Q

What are authorized shares?

A

Number of shares set forth in articles

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95
Q

What are outstanding shares?

A

Shares that have been issued but unredeemed

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96
Q

What are redeemed shares?

A

Shares repurchased or redeemed by the corporation

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97
Q

Redeemed shares can be:

A
  1. Cancelled OR
  2. Held as treasury stock for potential reissue
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98
Q

Before shares can be distributed to a class, the class must be set forth in ______.

A

The articles

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99
Q

What can be consideration?

A
  1. Any tangible property
  2. Any intangible property
  3. Any benefit to the corporation
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100
Q

What is a par value?

A

Minimum issuance price specified in corporation’s articles?

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101
Q

Any valid consideration may be received if ___________.

A

The board of directors values it in good faith to be worth at least par value

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102
Q

Who may the corporation hold liable for issuing shares at below par value?

A
  1. Directors
  2. Buyers of shares
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103
Q

If there is no par value, there is no _________.

A

Minimum issuance price

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104
Q

If there is no par value, then any valid consideration may be received if __________.

A

Deemed adequate by the board of directors

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105
Q

What is treasury stock?

A

Stock previously issued by the corporation but later reacquired

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106
Q

________ stock is considered no par value.

A

Treasury

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107
Q

Debt securities are issued when a corporation:

A
  1. Borrows funds from outside investors AND
  2. Promises to pay them back
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108
Q

Holders of debt securities have no __________.

A

Ownership interest in the corporation

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109
Q

Shareholders own _________ interest in a corporation.

A

Equity

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110
Q

Shareholders are not entitled to distribution of a dissolved corporation’s assets until ____________.

A

All debts of the corporation have been satisfied

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111
Q

Publicly held corporations are subject to _____________ laws.

A

Federal securities laws

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112
Q

What does section 16(b) do?

A

Prohibits short-swing trading

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113
Q

What is short-swig trading?

A

A director, officer, or >10% shareholder of a publicly traded corporation purchasing and sells stock of the corporation within 6 months

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114
Q

What is a corporation entitled to if there is short-swing trading?

A

Recover the maximum difference between any sale/purchase during this six-month period

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115
Q

§16(b) is applicable to large companies registered under the 1934 Act, which means companies:

A
  1. With $10M in assets AND 500 shareholders OR
  2. Listed on national stock exchange
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116
Q

Profits under 16(b) are calculated by __________.

A

Matching the highest sales price against the lowest purchase price in the six-month period

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117
Q

What does rule 10b-5 prohibit?

A

Use of an instrumentality of interstate commerce in any scheme to:
1. Defraud
2. Make material misrepresentations or omissions OR
3. In any other way use fraud in the purchase/sale of securities

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118
Q

Under Rule 10b-5, an insider must either ________ or not trade in securities.

A

Disclose inside information

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119
Q

An insider may be liable under Rule 10b-5 for ________ for an improper purpose.

A

tipping information regarding the company

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120
Q

Whare the elements of Rule 10b-5?

A
  1. Use of instrumentalities of interstate commerce
  2. Fraudulence including:
    a. misrepresentation of material fact
    b. failure to disclose OR
    c. insider trading
  3. in connection with the purchase/sale of security
  4. With at least recklessness AND
  5. Reliance by person on other side of transaction
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121
Q

What is scienter?

A

Intent to deceive, manipulate, or defraud

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122
Q

What is a material fact in regards to a Rule 10b-5 violation?

A

There is a substantial likelihood that reasonable investor would consider the information important to investment decision

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123
Q

Rule 10b-5 essentially prohibits _______.

A

Insider trading

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124
Q

What individuals will be held liable for insider trading?

A
  1. Insiders
  2. Non-insiders under misappropriation
  3. Tippers
  4. Tippees
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125
Q

Who is an insider?

A

Person who owes a fiduciary duty to the corporation

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126
Q

What is misappropriation theory in regards to insider trading?

A

Non-insider uses/trades information she knows/should know is material inside information.

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127
Q

A corporate insider is liable for tipping if she:

A
  1. Has a fiduciary relationship with the corporation AND
  2. Discloses material inside information to a tippee who trades on the basis of that information
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128
Q

Who is a tipper?

A

Person who discloses material inside information for personal benefit to someone else who trades on the basis of that information

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129
Q

When can a tippee be found liable?

A

If they trade on information received w/ knowledge that the tipper was breaching a fiduciary duty by disclosing that information

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130
Q

For the purposes of Rule 10b-5, damages are limited to ___________.

A

Difference between
1. The price paid AND
2. The average share price during the 90-day period after the market is corrected

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131
Q

What is the Sarbanes-Oxley act?

A

Federal law that set new/enhanced standards for all US public company boards, management, and public accounting firms

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132
Q

To what companies is the Sarbanes-Oxley Act applicable?

A
  1. $10M in assets AND 500 shareholders OR
  2. Listed on a national stock exchange
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133
Q

Sarbanes-Oxley created the ___________ board.

A

Public Company Oversight Board

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134
Q

Sarbanes-Oxley created the Public Company Oversight Board to:

A
  1. Register public accounting firms that prepare audit reports for issuers AND
  2. Establish/adopt rules for standards relating to the preparation of audit reports for issuers
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135
Q

A company’s audit committee is responsible for:

A
  1. Appointment
  2. Compensation AND
  3. Oversight
    …of the work of any registered public accounting firm employed by the company for preparing an audit report
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136
Q

Under the Sarbanes-Oxley Act, CEOs and CFOs must certify that:

A
  1. Officer has reviewed the report
  2. Report doesn’t contain any material untrue statements/material omission, nor is it misleading
  3. Financial statements fairly present the financial condition/results in all material respects AND
  4. Signing officers are responsible for internal controls and have evaluated those controls w/in the previous 90 days
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137
Q

if a company is required to restate materially mistated financial reports, it can ____________.

A

Recoup any benefit during a 12-month period after the false reports were filed with the SEC

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138
Q

A corporation can recoup benefits gained by directors/officers from purchasing/selling shares during ________ periods.

A

Fund black-out

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139
Q

What is a pension blackout period?

A

Period of at least three consecutive days when at least 50% of employees participating in the company’s retirement plan are prohibited from selling company securities in the plan

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140
Q

What punishment for the destruction, alteration, or falsification of records in federal investigations and bankruptcy?

A

Fine/imprisonment; max 20 years

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141
Q

What punishment for the destruction of corporate audit records?

A

Fine/imprisonment; max 10 years

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142
Q

What is the SoL for securities fraud?

A
  1. Two years after discovery of facts constituting the violation OR
  2. 5 years after violation
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143
Q

What protection is created by Sarbanes-Oxley for whistleblowers?

A

Creates a statutory cause of action for any employee discriminated against for reporting conduct that violates securities laws

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144
Q

What punishment for defrauding shareholders of publicly traded companies?

A

Fine/imprisonment; max 25 years

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145
Q

The power of direct control of the day-to-day management of a corporation is delegated to ___________.

A

Officers of the corporation

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146
Q

How can shareholders control day-to-day operations?

A

by entering into management agreements

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147
Q

What kind of control do shareholders have?

A

Indirect

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148
Q

How do shareholders exercise indirect control?

A

By voting on certain matters

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149
Q

What power do shareholders have over directors?

A

Electing/removing directors with/without cause

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150
Q

What powers do shareholders have over bylaws?

A
  1. Adopt
  2. Amend
  3. Repeal
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151
Q

Shareholders must approve fundamental corporate changes, such as:

A
  1. Merger
  2. Sale of assets outside ordinary course of business
  3. Dissolution
  4. Other extraordinary corporate matters
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152
Q

A shareholder direct action occurs when __________.

A

A shareholder brings a suit against the corporation

153
Q

Any recovery from a shareholder direct action goes to _________.

A

The shareholder, not the corporation

154
Q

What is a derivative action?

A

Lawsuit started by a shareholder to enforce a corporate cause of action

155
Q

Any recovery from a derivative action goes to ______.

A

The corporation

156
Q

What are the requirements for standing in a derivative action?

A
  1. Stock ownership when cause of action arose AND
  2. Can fairly and adequately represent the interests of the corporation
157
Q

What is the written demand for a derivative action?

A

Shareholder must
1. make written demand to board of action to take suitable action AND
2. wait 90 days for answers

158
Q

A shareholder must give the board of directors 90 days to respond to a written demand requirement before initiating derivative suit unless:

A
  1. Notified of rejection by board OR
  2. Irreparable injury`
159
Q

A derivative proceeding shall be dismissed by the court on a motion the corporation if:

A

A majority of directors has, after conducting reasonable inquiry, determined in good faith that the derivative action is not in the best interests of the corporation

160
Q

If a corporation brings a motion to dismiss a derivative suit, a shareholder must show that either:

A
  1. A majority of the board didn’t consist of independent directors at the time determination was made OR
  2. Dismissal was not made in good faith after a reasonable inquiry
161
Q

If the majority of the board was not independent upon making an inquiry that led to a motion for dismissal of a derivative proceeding, then ________.

A

The corporation has the burden of proving that dismissal was made in good faith after reasonable inquiry

162
Q

A derivative proceeding may not be discontinued/settled without ____________.

A

Court approval

163
Q

If a derivative action resulted in substantial benefit to the corporation, the court may order _________

A

Corporation to pay P’s reasonable expenses

164
Q

If a derivative action was commenced/maintained without reasonable cause or for improper purpose, the court may order _________

A

D’s reasonable expenses

165
Q

Every corporation must hold an annual meeting of ____________ according to ______.

A

Shareholders

the bylaws

166
Q

Who can call a special meeting?

A
  1. Board of directors
  2. Other authorized persons
  3. 10% of the votes entitled to be cast at the meeting
167
Q

What is the purpose of a special meeting?

A
  1. Proposals
  2. Fundamental changes
168
Q

If no place is stated in the bylaws, where may corporate meetings be held?

A

At corporation’s principal’s office

169
Q

What are the requirements for notice relating to a corporate meeting?

A
  1. Between 10-60 days notice AND
  2. Include time/place of meeting
170
Q

What additional requirement exists for notice of special meetings?

A

Statement of purpose

171
Q

How does a shareholder waive notice?

A
  1. In signed writing delivered to the corporation OR
  2. By attending the meeting unless objection is made at the beginning of the meeting
172
Q

Each outstanding share is entitled to one vote unless ___________.

A

Otherwise specified in articles of incorporation

173
Q

A shareholder may vote her shares via:

A
  1. In person OR
  2. By proxy
174
Q

Only ______ owners of stock shares on ________ date may vote.

A

Registered

Record

175
Q

What is the record date?

A

Any day set by board within 70-day window before the meeting

176
Q

If the board does not set a record date, the record date is _________.

A

The day notice of the meeting is sent out

177
Q

What does a proxy do?

A

Delegates a shareholder’s right to vote to another person

178
Q

What are the requirements for valid proxy?

A
  1. In writing
  2. Signed by record owner
  3. Sent to corporation’s secretary
  4. Authorizes vote on owner’s behalf
179
Q

How long are proxies valid?

A

11 months, unless provided otherwise

180
Q

Proxies are revocable unless:

A
  1. Conspicuously states that proxy is irrevocable AND
  2. Coupled with an interest in shares themselves
181
Q

What proxies have an interest in shares themselves?

A
  1. Pledgee
  2. Purchaser
  3. Creditor
  4. Employee
  5. Voting agreement
182
Q

A quorum must ______ before a vote may validly be taken.

A

Attend a meeting

183
Q

What is required to have a quorum?

A

Majority of all outstanding shares entitled to vote must be represented when meeting begins

184
Q

Once a share is represented for any purpose at a meeting, how long is it deemed present for quorum purposes?

A
  1. Remainder of meeting AND
  2. For any adjournment unless a new record date is/must be set for the adjourned meeting
185
Q

Unless articles require a different voting requirement, an action is approved if ________.

A

Votes cast in favor exceed the votes cast in opposition by one share

186
Q

Unless articles specify otherwise, directors are elected by _______.

A

Plurality of the votes

187
Q

What is a plurality?

A

Largest number of votes received by any director

188
Q

What is cumulative voting?

A

Each shareholder gets one vote per open director slot; there is one open slot.

189
Q

When is cumulative voting allowed?

A

When expressly granted in the articles

190
Q

What is class voting?

A

Typical quorum and voting rules, but applied separately to each class of shares

191
Q

Action required/permitted to be taken at a shareholder’s meeting may be taken without a meeting if:

A
  1. The action is taken by all shareholders entitled to vote AND
  2. Is evidenced by signed writing describing the action taken and delivered to the corporation
192
Q

If a shareholder wants to make an inspection, she must give written notice of her demand at least _______ before the date of inspection.

A

Five business days

193
Q

A shareholder is entitled to a purposeless inspection of:

A
  1. Articles
  2. Bylaws
  3. Board resolutions regarding classification of shares
  4. Minutes of shareholder meetings from the past 3 years
  5. Communications sent to shareholders over the past 3 years
  6. Names/addresses of directors/officers OR
  7. Copy of annual report
194
Q

If shareholders need a purpose for inspection, they must:

A
  1. Make demand in good faith and for proper purpose
  2. Describe purpose with reasonable particularity
  3. Describe with reasonable particularity the records she desires to inspect AND
  4. Records are directly related to your purpose
195
Q

What records require a purpose before a shareholder may inspect them?

A
  1. Any corporate record not in the “purposeless inspection” list
  2. Accounting records of the corporation OR
  3. Record of shareholders
196
Q

What are a shareholder’s preemptive rights?

A

Right to maintain existing ownership percentage when the corporation issues new shares of stock

197
Q

Shareholders of a corporation do not have a preemptive right to ________ except to the extent provided for in the articles of incorporation.

A

Acquire the corporation’s unissued shares

198
Q

Even if granted in the articles, shareholders do not have a preemptive right with respect to:

A
  1. Shares issued as compensation to directors, officers, agents or employees of the corporation
  2. Shares issued within 6 months of incorporation
  3. Shares sold for consideration other than cash
  4. Shares w/o voting rights but with distribution preference
199
Q

A restriction on the transfer of shares is authorized for what purpose?

A
  1. To maintain corporation’s status
  2. To preserve exemptions under federal/state securities law OR
  3. For any other reasonable purpose
200
Q

A restriction on transfer of stock must be _______ noticed.

A

Conspicuously

201
Q

A restriction on transfer of stock is valid/enforceable against the holder/transferee of the holder if:

A
  1. It is authorized AND
  2. Its existence is noted conspicuously on the front/back of the certificate
202
Q

A restriction on transfer of stock is only enforceable against a third party who _______________.

A

Had knowledge of restriction

203
Q

What does a voting trust do?

A

Confer on a trustee the right to vote or otherwise act for them

204
Q

In broad strokes, how is a voting trust created?

A

Signing an agreement
1. Setting out the provisions of the trust AND
2. Transferring their shares to the trustee

205
Q

What are the requirements for a voting trust?

A
  1. In writing
  2. Names & addresses of all owners of beneficial interests in the trust
  3. Number and class of shares, each transferred to the trust AND
  4. Deliver copies of the list & agreement to the corporation
206
Q

How long are voting trusts good for?

A

10 years

207
Q

A voting agreement is also known as a __________.

A

Pooling agreement

208
Q

How long are voting trusts good for?

A

10 years

209
Q

A voting agreement is also known as a __________.

A

Pooling agreement

210
Q

What does a voting agreement do?

A

Provides for the manner in which they will vote their shares

211
Q

What are the requirements of a voting agreement?

A
  1. In writing
  2. Signed by shareholders entering the agreement
212
Q

Upon whom is a voting agreement enforceable?

A

All signors

213
Q

What is a shareholder management agreement?

A

Agreement regarding almost any aspect of the exercise of corporate power

214
Q

To be valid, a shareholder management agreement must be ________.

A

Included in
1. Articles
2. Bylaws OR
3. Written agreement by all shareholders at time of adoption

215
Q

What is required for the amendment of shareholder management agreements?

A

Unanimous consent by shareholders at time of amendment

216
Q

How long is a shareholder management agreement valid?

A

For 10 years

217
Q

A shareholder management agreement will terminate upon:

A
  1. Listing on National Securities Exchange OR
  2. Becoming otherwise regularly traded
218
Q

_______ have no right to distributions.

A

Shareholders

219
Q

The board of directors has unlimited discretion to decide whether to distribute any value to the shareholders UNLESS:

A
  1. Unable to pay debts OR
  2. Dividend will render corporation insolvent
220
Q

What is a defense of good faith reliance?

A

A board may base a determination that a distribution wasn’t prohibited either on:
1. Financial statements prepared on the basis of accounting practices
2. Principles that are reasonable in the circumstances

221
Q

______ may restrict the board’s ability to declare distributions.

A

Articles

222
Q

What are the restrictions on share dividends?

A

May not be issued unless:
1. Authorized by the articles
2. Majority of class/series approves the issue OR
3. No outstanding shares of the class/series to be issued

223
Q

Preferred stock means that ______.

A

Preferred stockholders are paid dividends first

224
Q

Cumulative preferred stockholders have the right to _________.

A

Recieve prior unpaid dividends payments before dividends can be paid to common stock

225
Q

Participating preferred stockholders are paid dividends both as ______ and as ______.

A

Preferred stock

Common stock

226
Q

Common stockholders are _______ last and are ______ equally.

A

Paid dividends

Paid dividends

227
Q

Once a distribution is declared, shareholders are treated as _________ with respect to their claim for distribution.

A

general unsecured creditors

228
Q

If the board does not fix the record date for determining shareholders entitled to a distribution, what date is used?

A

The date the board of directors authorizes the distribution

229
Q

Are shareholders liable for a corporation’s debts or obligations?

A

No

230
Q

The general rule is that shareholders have no fiduciary duty to ______ or _______.

A

The corporation

Other shareholders

231
Q

Controlling shareholders have a fiduciary duty to avoid:

A
  1. Using their control to obtain a special advantage OR
  2. Forcing the corporation to take an action that unfairly prejudices minority shareholders
232
Q

Controlling shareholders who sell controlling interests to someone who subsequently ___________ will be liable for damages.

A

Loots the corporation to the detriment of minority shareholders

233
Q

What defense is available to controlling shareholders against liability for sale & subsequent looting?

A

There was a reasonable investigation of character & reputation

234
Q

Shareholders in close corporations owe their shareholders duties of:

A
  1. Loyalty
  2. Utmost good faith
235
Q

If shareholders have agreed to vest control of the corporation in __________, they will be subject to director liability.

A

Themselves

236
Q

Every corporation must have a board of directors with at least one _____.

A

Member

237
Q

How do you know how many individuals should make up a board of directors?

A

Look at the number specified in/fixed in accordance with the articles/bylaws

238
Q

Unless articles state otherwise, there are no _____ or _____ requirements for a director.

A

Residency

Shareholder

239
Q

The number of directors may be changed via _______.

A

Amendment to articles/bylaws

240
Q

When are directors elected?

A

Annual shareholder meetings

241
Q

Despite expiration of a director’s term, she continues to serve until:

A
  1. Her successor is elected and qualifies OR
  2. There is decrease in the number of directors
242
Q

When do the initial directors expire?

A

First shareholder meeting at which directors are elected

243
Q

How can the terms of directors be staggered?

A

By dividing total number of directors into 2-3 groups, each containing 1/2 or 1/3 of the total

244
Q

Unless the articles provide otherwise, shareholders or directors may fill a vacancy on _______.

A

The board of directors

245
Q

Meeting is required for all board action unless ____________.

A

Unanimous written consent of the directors to act without a meeting

246
Q

No notice is required for _____ meetings.

A

Regular meetings

247
Q

What notice is required for special meetings?

A

At least 2 days

248
Q

Board actions are valid only when _________ is present.

A

A quorum of the board

249
Q

While a corporation can establish a smaller number for a quorum, it cannot be fewer than _________.

A

1/3 of the directors

250
Q

What means of communication can be used for board member participation in meetings?

A

Any communication by which all members may simultaneously hear each other

251
Q

Directors can break a quorum by ______.

A

withdrawing prior to a vote

252
Q

What voting requirement exists for a binding board action?

A

Majority of directors present

253
Q

No _____ are allowed for votes for binding board action.

A

Proxies

254
Q

Are conference calls allowed for binding board actions?

A

Yes

255
Q

Every individual board member is presumed to have concurred with the Board’s action unless:

A
  1. Director objects at beginning of meeting
  2. Dissent/abstention taken is entered in the minutes of the meeting OR
  3. Delivers written notice of her dissent or abstention
256
Q

Committees created by a board of directors have the powers of ___________.

A

The board

257
Q

Creation of a committee (and appointment of its members) must be approved by whichever is higher:

A
  1. Majority of all directors in office when action is taken OR
  2. Number of directors required by the articles/bylaws to take binding board action
258
Q

A committee may not:

A
  1. Authorize/approve distributions
  2. Approve/propose shareholder action required to be approved by shareholders
  3. Fill vacancies on the board of directors or any of its committees OR
  4. Adopt/amend/repeal bylaws
259
Q

What are a director’s primary duties?

A
  1. Duty to manage
  2. Duty of care
  3. Duty of loyalty
  4. Duty to disclose
260
Q

Directors may delegate their duty to manage to ____________.

A

A committee of 1+ directors

261
Q

What is the business judgment rule?

A

There is a presumption that the directors manage the corporation with:
1. Good faith
2. Rational basis
3. Reasonable investigation

262
Q

A director who takes action that __________ will be liable to the corporation unless the business judgment rule applies?

A

harms the corporation

263
Q

What is the standard of conduct under the director’s duty of care?

A

Each member of the board shall act:
1. In good faith AND
2. In a manner the director reasonably believes to be in the best interests of the corporation

264
Q

When does a director act in a manner she believes to be in the best interests of a corporation?

A

When she acts with care that a person in like position would reasonably believe appropriate under similar circumstances

265
Q

A director may rely on information prepared by:

A
  1. Officers/employees of the corporation
  2. Legal counsel/public accountants OR
  3. Committee of the board of directors of which the director is not a member
266
Q

Which party must prove that a director’s action didn’t meet the standard of conduct?

A

Party asserting liability

267
Q

What is a director’s duty of loyalty?

A
  1. Must act in best interests of corporation AND
  2. May not receive an unfair benefit to the detriment of the corporation/its shareholders
268
Q

Does the presence of an interested director at the meeting at which approval is sought affect approval?

A

No

269
Q

When does self-dealing occur?

A

When a director/family member reaps personal advantage at the expense of the corporation

270
Q

What are the defenses to self-dealing?

A
  1. There was material disclosure and independent ratification
  2. Transaction was fair to the corporation at time of transaction
271
Q

Material disclosure and independent ratification is a defense to self-dealing.

In this context, what is independent ratification?

A
  1. Majority vote of independent directors
  2. Majority vote of committee with at least 2 independent directors OR
  3. Majority vote of shares held by independent shareholdersWhen has a director usurped corporate
272
Q

A director must present any ____________ to the corporation first.

A

Corporate opportunities

273
Q

A director can only pursue corporate opportunities if _________.

A

Board decides not to pursue them on behalf of the corporation

274
Q

A director cannot usurp corporate opportunities. This applies to what opportunities?

A

Business opportunities that the director reasonably believes the corporation would be interested in

275
Q

A director cannot usurp corporate opportunities.

What test is used in order to determine whether an opportunity is one the director should reasonably believe the corporation is interested in?

A

The corporation must have:
1. Interest OR
2. Expectancy

276
Q

That a director learned of a corporate opportunity in ______ capacity is no defense to usurping corporate opportunities.

A

Personal

277
Q

Even if the corporation lacks __________, the director must present an opportunity to the corporation first.

A

Adequate financing to pursue an opportunity

278
Q

Directors have a duty to disclose _______ to other board members.

A

Material corporate information

279
Q

The board of directors has the power to _____ and _____ officers.

A

Appoint

Fire

280
Q

Unless articles/bylaws provide otherwise, the board of directors may fix the ________ of directors.

A

Compensation

281
Q

________ compensation will be a breach of the director’s fiduciary duties to the corporation.

A

Unreasonable

282
Q

Directors can be held personally liable to the corporation for injuries caused from _______.

A

Breach of their duties

283
Q

Articles cannot eliminate director liability for duty of care in regards to:

A
  1. Financial benefits received but not entitled to
  2. Intentionally-inflicted harm on the corporation or shareholders
  3. Unlawful corporate distributions
  4. Intentional violation of criminal law
284
Q

Action for unlawful distributions may be brought within _______ of the date that ________.

A

2 years

The distribution was determined to be unlawful

285
Q

A director held liable for unlawful distributions is entitled to:

A
  1. Contribution from every other director who also could have been held liable for the unlawful distribution
  2. Recoupment from each shareholder of the pro rata portion of the amount of the unlawful distribution the shareholder accepted knowing the distribution was unlawful
286
Q

The SOL for contribution from other directors for liability for unlawful distributions is _________.

A

One year after liability is fully adjudicated

287
Q

The SOL for recoupment from shareholders who knowingly accepted unlawful distribution is _________.

A

1 year after liability fully adjudicated

288
Q

Indemnification is never available where the director is found liable on the basis of ___________.

A

Improper financial benefit

289
Q

Indemnification is always available if ______

A

Director wins

290
Q

Indemnification is permissive if _________.

A

The director makes a showing of good faith

291
Q

A director’s eligibility for permissive indemnification is determined by:

A
  1. Good faith & reasonable belief OR
  2. Permitted by articles of incorporation
292
Q

A director’s eligibility for permissive indemnification is determined by good faith & reasonable belief. In their official capacity, that means _______.

A

Conduct in the best interests of the corporation

293
Q

A director’s eligibility for permissive indemnification is determined by good faith & reasonable belief. Outside of their official capacity, that means _______.

A

Conduct at least not opposed to best interests of corporation

294
Q

A director’s eligibility for permissive indemnification is determined by good faith & reasonable belief. In criminal proceedings, that means _______.

A

No reasonable cause to believe conduct was unlawful

295
Q

Who determines whether permissive indemnification is appropriate?

A
  1. Majority vote of independent directors
  2. Majority vote of committee with at least 2 independent directors
  3. Majority vote of shares held by independent shareholders
  4. Special lawyer’s opinion OR
  5. Court
296
Q

A corporation may advance expenses to a director before determination of the action if she delivers to the corporation:

A
  1. Written affirmation that she has good faith belief that conduct met the relevant standard AND
  2. Written affirmation to repay the advance if it is determined that her conduct wasn’t appropriate
297
Q

Can a corporation maintain insurance against a director’s liability?

A

Yes

298
Q

What votes are required for director removal?

A

More votes cast to remove than cast NOT to remove

299
Q

____ have the right to remove directors, both with and without cause.

A

Shareholders

300
Q

A director may not be removed if the number of votes sufficient to elect her under ________ voting is voted against her removal

A

Cumulative voting

301
Q

If a director is elected by a voting group of shareholders, only _________ may participate in the vote to remove her.

A

Shareholders of that voting group

302
Q

A director may be removed from the board by court order for:

A
  1. Fraudulent conduct
  2. Gross abuse of authority OR
  3. Intentionally inflicted harm on the corporation
303
Q

Before removing a director, a court must make determination that _________.

A

Removal would be in the best interest of the corporation

304
Q

What officers are required for a corporation under the RMBCA?

A

None

305
Q

How many offices can one individual hold in a corporation?

A

As many as they’re appointed to

306
Q

What gives officers the power to bind a corporation?

A

They’re agents of the corporation

307
Q

The rules of _______ govern the authority/powers of corporate officers

A

Agency

308
Q

Express authority is also known as ______.

A

Duties

309
Q

Each officer has the authority and responsibility to perform the duties set forth by:

A
  1. The bylaws
  2. Board of directors
  3. Officer authorized to prescribe duties to other officers
310
Q

Officers have implied authorization if:

A
  1. Necessity
  2. Custom OR
  3. Prior dealings
311
Q

A corporate officer has apparent authority to bind the corporation when:

A
  1. She is held out to a third party as having such authority AND
  2. Third party relies on that authority
312
Q

What are the fiduciary duties of officers?

A
  1. Duty of care AND
  2. Duty of loyalty
313
Q

What is the standard of conduct for an officer acting in their capacity as an officer?

A
  1. In good faith
  2. With care a reasonably prudent person would exercise AND
  3. In the best interests of the corporation
314
Q

If an officer is challenged with failing to perform her fiduciary duties, what defense is available?

A

Business judgment rule

315
Q

A corporation may indemnify and advance expenses to an officer of the corporation who is ______.

A

A party to a proceeding

316
Q

When may an officer resign?

A

At any time after giving notice to the corporation

317
Q

If resignation is a breach of contract, the officer can be held liable for _________.

A

Breach of contract

318
Q

For what reasons can a corporation remove an officer?

A

At any time for any cause

319
Q

If removal is an officer is a breach of contract, the corporation will be liable for ______.

A

Breach of contract damages

320
Q

Appointment of an officer by itself does not create _______ rights.

A

Contract

321
Q

What are the procedural requirements for fundamental changes?

A
  1. Board resolves to change at valid meeting
  2. Special notice for special meeting
  3. Shareholder approval AND
  4. Notice of change filed with the State
322
Q

What is shareholder approval in terms of procedural requirements for a fundamental change?

A

Majority of shareholders at meeting with quorum present

323
Q

What occurs in a merger?

A

Two corporations come together, with the latter surviving and the former ceasing to exist.

324
Q

Approval of shareholders is not required for merger if:

A
  1. Corporation will survive the merger
  2. Articles of incorporation haven’t changed
  3. Each shareholder holds same number of shares w/ identical preferences, limitations, and relative rights AND
  4. Shares issued are no more than 20% of voting power of surviving corporation prior to merger
325
Q

What is a short-form merger?

A

Parent corporation merges with its own subsidiary where it owns 90% or more of the stock

326
Q

What are the requirements for short-form merger approval?

A
  1. Approval by board of directors AND
  2. Notice to shareholders of both companies
327
Q

What is share exchange?

A

One corporation purchases all of the shares of 1+ classes/series of stock in another corporation

328
Q

A share exchange is not a ________ change.

A

Fundamental

329
Q

Who needs to approve a share exchange?

A

Only shareholders of acquired corporation

330
Q

What’s the difference between consolidation and merger?

A

Merger brings one corporation into another.

Consolidation combines two corporations into a new one

331
Q

List the different types of fundamental changes in corporate structure.

A
  1. Mergers & share exchanges
  2. Consolidation
  3. Dissolution by board of directors & shareholders
  4. Amendment to articles or bylaws
  5. Sale of all/substantially all of the corporation’s assets
  6. Conversion
332
Q

Corporation may amend its articles of incorporation at any time to add/change a provision that is:

A
  1. Required OR
  2. Permitted
    …as of the effective date of the amendment
333
Q

Amendment before the issue of shares requires approval of:

A
  1. Directors OR
  2. Incorporators (if no board)
334
Q

Amendment after shares are issued requires the approval of _________.

A

Shareholders

335
Q

Certain general _________ amendments don’t require shareholder approval.

A

housekeeping

336
Q

Who may amend or repeal corporation bylaws?

A

A corporation’s shareholders

337
Q

A corporation’s board of directors may amend/repeal a corporation’s bylaws unless:

A
  1. Articles reserve power exclusively to shareholders OR
  2. Shareholders expressly provide that directors cannot amend bylaw
338
Q

A sale, lease, exchange, or disposition of assets requires approval of the corporation’s shareholders if _______________.

A

The disposition would leave the corporation w/o a significant continuing business activity

339
Q

What is significant business activity?

A
  1. Greater than or equal to 25% of total assets AND
  2. 25% of income/revenues
340
Q

Certain disposition of assets do not require shareholder approval, such as:

A
  1. Sell, lease, exchange, or otherwise dispose of in usual & regular course of business
  2. Mortgage or otherwise encumber whether or not in usual & regular course of business
  3. Transfer of subsidiary OR
  4. Distribute assets pro rata to shareholders
341
Q

What is corporation conversion?

A

Corporation converting itself into another entity

342
Q

If a corporation approves a fundamental change, dissenting shareholders have a right to ______.

A

Force the corporation to buy their shares at fair value

343
Q

Those shareholders who may dissent are entitled to _____ rights.

A

Appraisal

344
Q

What shareholders are entitled to appraisal rights?

A

Shareholders…
1. Entitled to vote on a plan of merger
2. Of the subsidiary in a short-form merger
3. Of a corporation whose shares are acquired in a share exchange
4. Entitled to vote on asset disposition
5. Whose rights are materially & adversely affected by amendment to articles AND
6. Shareholders of corporation converting to an unincorporated entity

345
Q

Regarding dissenter rights, what must occur before a vote?

A
  1. Corporation must give notice of dissenters rights
  2. SH must give written notice of objection & intent to demand payment
346
Q

During a vote, a dissenting shareholder cannot vote _________.

A

In favor of the fundamental change

347
Q

A corporation must deliver written appraisal notice to all dissenting shareholders within _______.

A

10 days

348
Q

After a vote, dissenting shareholders must demand payment in accordance with _________.

A

Notice

349
Q

When a shareholder dissents, the corporation must pay fair value/interest within _______ of demand.

A

30 days

350
Q

A dissenting shareholder who is dissatisfied with the amount of payment received must communicate a notice of dissatisfaction within ________ of receiving corporation’s payment.

A

30 days

351
Q

If a corporation refuses to pay shareholder’s estimate of fair value, it must file action in court within _____ of receiving notice of dissatisfaction.

A

60 days

352
Q

The federal Williams Act regulates ______.

A

Tender offers

353
Q

What are the seven requirements placed on tender offers by the Williams Act?

A
  1. Disclosure requirements
  2. Rules regulating shareholder withdrawal rights
  3. “Pro rate” Rule
  4. “All holders” rule
  5. “Best price” rule
  6. Rules governing the duration of the tender offer
  7. Anti-fraud provisions
354
Q

Under the Williams Act, what must be disclosed?

A
  1. Bidder’s identity, source of funds, past dealings with target & future plans concerning target
  2. Bidder financial statements (if bidder is not an individual)
  3. Any contemplated management turnover or arrangement regarding the makeup of the majority of directors
355
Q

What is the “pro rata” rule?

A

Requires pro rata acceptance of shares tendered if the tender offer doesn’t require the bidder to accept all shared tendered

356
Q

What is the “all holders” rule?

A

Prohibits discriminatory tender offers

357
Q

What is the “best price” rule?

A

Requires that the highest price paid to any tendering security holder must be paid to all tendering security holders

358
Q

The “best price” rule only applies to shares that are ___________.

A

Purchased during a single tender offer

359
Q

A tender offer must remain open for at least ___________.

A

20 business days

360
Q

Common state protections against hostile takeover are known as _______ statutes.

A

Control share acquisition statutes

361
Q

There may be a dissolution by incorporators or initial directors if:

A
  1. Share not issued OR business not commenced
  2. All corporate debt must be paid
362
Q

If there is dissolution by incorporators or initial directors, the remaining assets will be distributed to shareholders if _______.

A

Shares were issued

363
Q

Dissolution is typically done by __________.

A

Board of directors & shareholders

364
Q

A dissolved corporation continues its corporate existence but may not carry on business except ______________.

A

For business to wind up and liquidate its business and affairs

365
Q

Once a corporation is dissolved, what proceedings can be commenced regarding the corporation?

A

Doesn’t prevent commencement of proceeding by/against the corporation

366
Q

A dissolved corporation may dispose of known claims against it by _________.

A

Notifying its known claimants in writing of dissolution at any time after its effective date

367
Q

A dissolved corporation may also publish notice of dissolution in _____________.

A

A newspaper of general circulation in the county where the dissolved corporation’s principal office is/was last located

368
Q

Claims against dissolved corporations will be barred unless commenced within _______ after the publication date of the newspaper notice.

A

3 years

369
Q

Dissolution does not abate/suspend a proceeding that is _________.

A

Pending by/against the corporation

370
Q

The secretary of state may commence a proceeding to administratively dissolve a corporation if:

A
  1. Failure to pay franchise taxes
  2. Failure to deliver annual report to secretary of state
  3. W/o registered agent/office in the state
  4. Failure to notify secretary of state of changes to registered agent/office OR
  5. Corporation’s period of duration expires
371
Q

What is the procedure for the secretary of state seeking dissolution of a corporation?

A
  1. Written notice to corporation of failure
  2. Corporation has 60 days to correct ground for dissolution or show it doesn’t exist
372
Q

A corporation administratively dissolved may apply for reinstatement within ______ after the effective date of dissolution?

A

Two years

373
Q

What are the application requirements for reinstatement following administrative dissolution?

A
  1. Recite name of corporation & effective date of dissolution
  2. Must state ground either doesn’t exist or has been corrected
  3. State corporate name requirements are met
    AND
  4. Contain certificate from taxing authority reciting that all taxes are paid
374
Q

When reinstatement after dissolution is effective, it relates back to what date?

A

Effective date of administrative dissolution

375
Q

Dissolution can occur in a proceeding by the attorney general if it is established that:

A
  1. Corporation obtained its articles of incorporation through fraud OR
  2. Corporation has continued to exceed or abuse its authority
376
Q

Dissolution can occur in a proceeding by a shareholder if it is established that:

A
  1. Directors are deadlocked
  2. Directors’ actions are illegal, oppressive, or fraudulent
  3. Shareholders are deadlocked OR
  4. Corporate assets being misapplied/wasted
377
Q

Dissolution can occur in a proceeding by a creditor if it is established that:

A
  1. Judgment unsatisfied & corporation insolvent OR
  2. Corporation admits in writing that creditor’s claim is due & corporation insolvent
378
Q

Dissolution can occur in a proceeding by a corporation if it is established that:

A

Nothing; this is voluntary.

Bar Exam (15 decks)

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