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Corporations Flashcards

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1
Q

A C Corp is taxed _____, an S Corp is taxed _____

A

Double taxation - both on profits and distributions

Pass through tax - only taxed at owner level

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2
Q

S Corp Requirements

A

-No more than 100 shareholders
-Shareholders must be humans
-Only one class of stock

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3
Q

De Jure v. De Facto Corp

A

De jure - properly formed under law

De facto - corporation that failed requirements, but may be treated as a corp

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4
Q

Filing required for a corporation is a ______, info required is:

A

Articles of Incorporation - filed with the state, begins the existence of the corp.

-Name of Corp
-Registered agent/office
-Corporations stock info

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5
Q

The organizational meeting happens ____ and involves _____

A

post filing of Arts of Incorp (Run by directors if named in AOI or by incorporators)

-Adopt bylaws
-Appoint officers

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6
Q

Internal affairs doctrine states that

A

the internal affairs of a corp are governed by the law of the state of incorp

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7
Q

Benefit corps are

A

formed for profit AND to pursue a broader social policy cause

They can pursue without violating Fid Duties so long as they file as a B Corp and provide annual benefit report.

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8
Q

A de facto corp may exist if it meets the following requirements:

A

-Relevant incorporation statute (always met)
-Good faith, colorable attempt to comply
-Act as a corporation
-No knowledge of failure to properly incorporate

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9
Q

Effect of de facto corp status

A

Treated as a corp for all purposes except in an action by the state

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10
Q

To be a de facto corporation or to qualify for corporation by estoppel, you cannot

A

Know that the incorporation was invalid

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11
Q

Corporation by estoppel applies in ____

A

Contract cases to bar avoidance of liability based on improper formation

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12
Q

Promoter liability states that

A

A promoter entering a K on behalf of an unformed corporation does NOT bind the corporation unless it adopts the K

The Promoter is personally liable, even after the corporation forms and adopts the K

Only loses liability if a novation occurs

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13
Q

Any out of state corporation must register if they

A

conduct regular intrastate business

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14
Q

A subscription is

A

An offer to buy stock from a corporation

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15
Q

Subscription revocability is based on

A

-Pre-incorporation, it is irrevocable for 6 months

-Post-incorporation - revocable until accepted

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16
Q

Consideration necessary for issuance of stock is

A

Any tangible or intangible property or benefit to the corporation

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17
Q

Par stock is _____. Watered stock is ____

A

Par = minim issuance price

Watered = issuance below par

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18
Q

For a shareholder to have preemptive rights, they must be _____ and are triggered only in _____

A

Express in Articles of Incorp

Issuance of stock for money

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19
Q

Directors are appointed by

A

The articles or incorporators initially, then the shareholders elect them annually (unless otherwise specified)

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20
Q

Directors can be removed by

A

Shareholders with or without cause

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21
Q

Vacancies of directors are filled by

A

If resigned - Board or shareholders

If removed - Shareholders

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22
Q

Board action must act

A

As a group

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23
Q

The board can act in two ways:

A

Unanimous agreement in writing (email/separate docs are suff)

At a meeting w/ quorum and voting reqs met

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24
Q

For special board meetings, notice requirements are

For regular board meetings advance notice is

A

Two days notice is Required and failure renders any acts voidable or void, if the absent directors do not waived

Not required

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25
Q

For a meeting of the board, quorum requires

A

A majority of all directors, unless otherwise stated (can’t be less than 1/3 of board)

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26
Q

A board meeting can approve action by a vote of

A

a majority of those present

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27
Q

If quorum is lost

A

Then the board cannot take any further action

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28
Q

Board of directors responsibilities include

A

Sets policy, supervises officers, declares distributions, determines when stock will be issued, recommends fundamental corporation changes to shareholders

Can create committees, but can’t delegate declaring distribution, filling board vacancy, or recommending fundamental change

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29
Q

The fiduciary duties owed are

A

Duty of loyalty and Duty of Care

They are owed to the corporation.

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30
Q

For the duty of care, the burden is on

A

The person challenging the director’s action

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31
Q

Two common scenarios for breach of the duty of care

A

Nonfeasance - does nothing (requires showing that the failure to act caused harm)

Misfeasance - hurts the business (harm met)

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32
Q

The business judgment rule applies to _____ and its effect is to provide ____

A

Duty of care claims

A presumption that any decision is not a breach if it is made
(1) in good faith,
(2) with reasonable care
(3) and the reasonable belief that it is in the best interests of the corporation.

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33
Q

Directors charged with breach of the duty of care may claim the defense of

A

good faith reliance on information provided by
(1) corporate officers or employees
(2) legal counsel, accountants
(3) a committee

34
Q

The standard that must be met to prevent breach of fiduciary duties is:

A

All acts must be reasonably believed to be in the best interest of the corporation.

35
Q

The burden for a breach of duty of loyalty claim is on

A

The defendant

36
Q

Common scenarios of breach of duty of loyalty

A

Self-dealing
Competing ventures
Corporate opportunity

37
Q

Self dealing claims may be cleansed by

A

With disclosure of all material facts:
-a majority of disinterested directors approve
-a majority of disinterested shareholders approve
-OR Judged by circumstances when self-dealing occurred, it was fair to the corporation

38
Q

Corporate opportunity breach occurs when

A

A director takes an opportunity without giving first right of refusal to the corporation

Applies to any opportunity in the line of business of the corporation and lack of financial ability is not a defense.

39
Q

A corporation can make loans to directors if

A

reasonably expected to benefit the corporation.

40
Q

A director is presumed to concur with board action unless dissent/abstention noted:

A

-in the minutes
-delivered at the meeting
-filed immediately after the meeting

(Doesn’t apply if absent)

41
Q

Officers are ____ of the corporation

A

Agents

Whether the officer can bind the corporation is determined by whether she has agency authority to do so

42
Q

Officers in a corporation can be selected and removed by

A

the board with or without cause

43
Q

A suit against an officer or director may require indemnity based on:

A

-No indemnification allowed - for someone who was found liable or received an improper benefit

-Mandatory indem - for someone who successfully defended such a claim

-Permissive indem - allowed where unsuccessful defense if the person (1) acted in good faith and (2) believed that her conduct was in the best interests of the corporation

44
Q

Close corporations features include

A

-Few shareholders
-Not publicly traded
-Only version of a Corp where shareholders can be the managers (shareholder management agreement or AoI)

45
Q

Liability for breaches can be eliminated only for

A

Breach of the duty of care

Never for breach of the duty of loyalty

46
Q

In a close corp, fiduciary duties are owed to

A

every other shareholder

47
Q

Suits for oppression are allowed in closely held corps because

A

there is no public market for the stock

48
Q

Shareholders can only be held liable for corporate debts through

A

Piercing the corporate veil

49
Q

Piercing the corporate veil requires

A

-Shareholders have abused the privilege of incorporation
-Fairness requires holding them liable

50
Q

Examples warranting Piercing the Corporate Veil

A

-Alter Ego - Shareholder uses corp funds as their own (only offending shareholders are liable)
-Under Capitalization - corp is under cap’d at time of formation (debts/liabilities outweigh capital)
-Fraud - corp formed to avoid obligations

51
Q

Derivative suits are brought by a _____ to enforce ____

A

Shareholder

Rights of the corporation

52
Q

The key question in determining if a suit is derivative is:

A

Could this suit have been brought by the corporation

53
Q

The recovery of a derivative suit goes to

A

the corp, costs covered to shareholder

54
Q

Requirements for bringing a derivative suit

A

-Stock ownership at time of wrong OR ownership by operation of law (inheritance/divorce decree)
-Shareholder adequately represents
-Shareholder made written demand first UNLESS futile

55
Q

The corporation’s motion to dismiss in a derivative suit will be granted if

A

An independent investigation concludes the suit is not in the Corp’s best interest

56
Q

The record holder at the record date is

A

The person who was registered as owning the stock at the record date, set in advance of a meeting

Note:
-Corp’s reacquisition of stock does not allow it to be voted (only outstanding shares can vote)
-Death of a shareholder after record date doesn’t bar estate from voting on their behalf

57
Q

Proxy voting is allowed if ____ and the requirements are ____

A

The shareholder was the record holder on the date

-Created in signed writing
-to the secretary of the corp
-Authorizing voting of the shares

58
Q

The revocation rules on proxy votes are

A

Generally revocable unless expressly irrevocable AND
-coupled with an interest
OR
-Given as a security

Also limited to 11 months or less

59
Q

A voting trust requires:

A

-Written trust agreement
-Copy of the agreement to corp
-Legal title transferred to trustee
-OG shareholders retain all other rights and keep trust certificates

60
Q

voting pools require

A

A signed writing

Enforceable in many, not all states

61
Q

Shareholder action takes place through

A

-Meeting w/ notice
-Unanimous written consent (email suff)

62
Q

Shareholders get to vote on

A

-Election/removal of directors
-Fundamental corp changes
-Anything else requested by the board

63
Q

Quorum for a shareholder vote requires

A

A majority of outstanding shares (regardless of shareholders)

Unless AOI or Bylaws require more

64
Q

If people leave, quorum for a shareholder meeting will

A

not be lost

65
Q

For a shareholder special meeting can be called by

A

-Board
-President
-Holders of 10% of the outstanding shares
-Anyone else authorized in Bylaws or AOI

66
Q

For the different shareholder actions to pass there must be ____ vote on which actions

A

Election of director - plurality

Removal of director -
-(Traditional view) Majority of outstanding shares
-(Modern view) majority of shares actually voting

67
Q

Cumulative voting is allowed ____ and features ____. To determine voting share _____

A

For electing directors

One at large election

Multiply number of directors to be elected by the number of shares to be voted.

68
Q

Shareholder demands for information are required for

A

Non-controversial things (shareholder meeting notes, info) - 5 days in advance

Controversial things (board mtg mins, corp records) - 5 days in advance w/ Proper purpose stated

69
Q

A restriction on alienation of shares are valid if

A

reasonable

Only first right of refusal to corp is reasonable

70
Q

The only people with the right to determine whether a distribution should be made are

A

The board of directors

Shareholder action would have to show extreme abuse of discretion in direct suit

71
Q

Preferred stock is _____ and common stock ______

A

Paid out first with any amount rights attached

Splits whatever remains

72
Q

For an improper distribution, ____ is liable

A

The directors are J&S liable (can use good faith reliance on info from others)

Shareholders are liable only if they knew it was improper when received

73
Q

Fundamental changes to the corp include _____ and require _____

A

Merger, Amending AOI, Dissolving, Selling substantially all assets

-BoD action
-Written notice to shareholders
-Vote from shareholders (traditional/modern view)
-Filing w/ Sec of State

74
Q

In a close corp, dissenting shareholders may have an action for ____ allowing them to _____

A

Dissenting shareholder right of appraisal

Force corp to buy shares at FMV in the event of a fundamental corporate change (other than amending articles)

75
Q

Exerting the dissenting shareholder’s right of appraisal requires

A

All the following
-Written notice of objection
-Abstention/objection at vote
-Post vote written demand
-Depositing shares with corp

(Only applies in close corp)

76
Q

Amending the articles requires

A

-Maj vote of
outstanding shares (traditional view)
shares actually voting (modern view)
-BOD Action
-Notice

77
Q

Merger/consolidation requires

A

-Maj vote of
outstanding shares (traditional view)
shares actually voting (modern view)
-BOD Action of both corps
-Notice
-Filing with SoS

Surviving corp has successor liability

78
Q

Transfer of all/substantially all assets reqs

A

-BoD action from both
-Notice to SH
-Vote of SH (trad/modern)

This is a fundamental action only for the selling corp

79
Q

Conversion into another organization requires

A

-BoD action
-Notice to SH
-Vote of SH (trad/modern)
-Delivery to SoS

80
Q

For a corporation to dissolve there must be

A

-BoD action
-Notice to SH
-Vote of SH (trad/modern)
-Notice to SoS

81
Q

When the articles and bylaws conflict

A

The articles prevail

82
Q

A director only has actual authority if there is either

A
  1. A meeting with quorum and approval by a majority of the directors
    OR
  2. Written unanimous consent of the directors

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