Corporations Flashcards
What duties do Board members owe to the corporation?
Duties of care and loyalty
July 2013
The duty of care requires:
Directors act in accordance with their good faith business judgment of the best interests of the corporation
July 2013
The duty of loyalty concerns [blank] and usually requires:
Conflicts of interest
Directors refrain from: (a) self-dealing; (b) competing with the corporation; and (c) usurping corporate opportunities
July 2013
What must a party do procedurally to recover from indiviuals on a theory of piercing the corporate veil?
Name the individual shareholders in the complaint
* Seek leave of court if needed (new parties may be added at any time as the ends of justice may require)
Feb 2014
Where is piercing the corporate veil appropriate?
To hold shareholders liable when courts believe that justice will be served by preventing fraud or unfairness
July 2018
What are the common situations for piercing the corporate veil?
(1) When corporation is operated as the owner’s alter ego (i.e., failure to observe corporate formalities)
(2) Undercapitlization (not enough capital to meet foreseeable liabilities)
(3) Misuse of corporate form–using corporate form to avoid existing personal obligations, perpetrating a fraud or crime
July 2018
When is a transaction that may otherwise violate the duty of loyalty permissible?
(1) Material facts and director’s interest dsclosed or known to the board or committee of the board which then authorizes, approves, or ratifies by majority vote of disinterested directors
(2) Material facts and director’s interest disclosed to shareholders and majority of disinterested shares approve, authorize, or ratify
(3) Transaction was fair to C
Just need one
July 2015, July 2021
How to approve fundamental corporate change
(1) Board adopts resolution at valid meeting
(2) Notice given to SHs (25-60 days before meeting)
(3) SHs approve by more than two-thirds of all shares entitled to vote (unless articles/bylaws change–can’t be less than majority)
July 2015
How may a corporation approve of the sale of all assets?
Fundamental corporate change–must follow rules, unless all shareholders approve the sale of assets (then don’t need to follow formalities)
July 2015, Sept. 2020
When does a distribution violate the Virginia Stock Corporations Act?
Where the distributions are made while the corporation is insolvent, would render the corporation insolvent, or would otherwise render corporation unable to pay outstanding liabilities or meet ongoing expenses
Feb 2016
When is a distribution prohibited during the “winding up” process?
When a distribution is made without paying all known outstanding liabilities (CREDITORS GET PAID FIRST)
Feb 2016
When is a director liable for approval of distributions to shareholders and which directors are liable?
When illegal distributions are made
* All directors who actually approved the illegal distribution are liable (not those who vote not to or explicitly abstain)
Feb 2016
When a director approves an illegal distribution and is held liable, what recourse do they have to recover the amount of the judgment?
They may (1) seek contribution from the other directors who authorized the illegal distribution under the theory that they are jointly and severally liable OR (2) seek recoupment of the amount improperly distributed from the shareholders who received the distribution
Feb 2016
What is the unqualified right to inspect?
Any stockholder, upon signed written request and 10 days’ notice, may inspect and copy the basic corporate records at the company’s principal office (i.e., bylaws and minutes)
Feb 2017
What is the qualified right to inspect?
A stockholder who has been a record holder for more than six months, own 5% or more of the stock, or obtains a court order may inspect accounting books and records of corporation for any proper purpose on 10 days’ written notice
Feb 2017
What protections exist for shareholders with respect to voting?
Shareholders’ right to vote shall be exercised free of duress and intimidation from corporate management
Feb 2018
May shareholders in a professional corporation enter into a Shareholders’ Agreement regarding liability for unpaid taxes without a meeting of the board/shareholders?
YES–shareholders may enter into agreement concerning, among other things, corporate governance, distributions, and the relationship among shareholders
* Shareholders’ agreement must be set forth in either articles, bylaws, or a written agreement by all shareholders
July 2019
When may a corporation be dissolved “voluntarily?”
By:
(1) Corporate act with resolution, notice, and vote
(2) Initial directors directors or incorporators
(3) Consent of all shareholders in writing
July 2019
When is judicial dissolution appropriate?
When: (1) directors are deadlock in management, shareholders cannot break deadlock, and irreperable injury is threatened; (2) Directors or controlled persons act illegally, oppressively, or fraudulently; or (3) Corporate assets are being misapplied or wasted
July 2019
When may a board loan corporate money to a member of the board?
When there is no self-dealing involved–conflict of interest transactions are permissible if ratified by a majority vote of disinterested boardmembers or shareholders
What are the proper procedural steps for making a fundamental corporate change?
(1) Board must adopt resolution at valid meeting
(2) Notice must be given to SHs
(3) SHs must approve by more than two-thirds of all shares entitled to vote–AOI may require different percentage, which may not be less than a majority
July 2021
What happens if a person knows a corporation hasn’t been incorporated by purports to act on behalf of a corporation?
They are jointly and severally liable for the liabilities created, except those in which the person with whom they dealt also knew that there was no corporation
July 2022
How is a corporation formed?
File articles of incorporation with SCC and pay registration fee
* Authorized shares, preferences, (registered) agent and office, names and addresses of incorporators, and name of the corporation
How is an LLC formed?
File articles of organization with SCC and pay required fee
* Name of LLC, registered agent and office, principal office of LLC
How is a limited partnership formed?
File certificate of limited partnership with SCC and pay required fee
* Name of LP, registered agent and office, principal office of LP, and name and address of each general partner
How are profits and losses distributed in a corporation?
They aren’t–shareholders issued stock based on percentage ownership interest in corporation, and then dividends may be issued
How are profits and losses allocated in LLC?
In accordance with the value of each member’s contributions to the company
How are profits and losses allocated in a partnership?
Presumptively evenly but can agree otherwise
How are profits and losses shared in a limited partnership?
Default is according to each partner’s contributions to the partnership
