Corporations

Question 1

What sets the number of votes required at a meeting?

Answer 1

Articles or bylaws. When the articles and bylaws conflict, articles control.

Question 2

Who may vote at a shareholders’ meeting?

Answer 2

Only shareholders of record on the record date.

Question 3

Can shareholders give another a written and signed proxy giving the other the right to vote the shares?

Answer 3

Yes

Question 4

Are proxies revocable?

Answer 4

Generally yes unless they say that they are irrevocable and are coupled with an interest.

Question 5

When are proxies coupled with an interest?

Answer 5

If the proxy holder essentially pays for the right to be a proxy, such as where the proxy holder has purchased the underlying shares from the owner of record.

Question 6

How can proxies be revoked?

Answer 6

By the shareholder attending the meeting to vote themselves, in writing to the corporate secretary, or by subsequent appointment of another proxy.

Question 7

Are shares that were issued and outstanding, but have been repurchased (“treasury shares”) outstanding?

Answer 7

No, so therefore they cannot be voted.

Question 8

De Jure Corporation

Answer 8

Follow all statutory provisions, insulates against personal liability of shareholders

Question 9

De Facto Corporation

Answer 9

Colorable compliance with most statutory provisions and exercise of corporate privileges, insulates against personal liability of shareholders, but corporation subject to quo warranto proceeding by state

Question 10

Corporation by Estoppel

Answer 10

Parties act as if there is a corporation; no requirement of following statutory provisions; insulates against personal liability in a contract but not in tort.

Question 11

Par Value

Answer 11

The concept is mostly dead, however, if the directors authorize a sale of stock for less than the stated par value, the shares will probably be treated as validly issued, but the directors who authorized the issuance can be held liable for breach of their fiduciary duty.

Question 12

Shareholder Annual Meetings

Answer 12

When: as the board of directors or president directs, but must be within 18 months of prior annual meeting

Where: anywhere

Notice: can be by mail between 10 and 60 days before meeting; must include time and place

Proxy Voting Allowed: yes

Question 13

Shareholder Special Meetings

Answer 13

When: as the board of directors or president directs

Where: anywhere

Notice: Can be by mail between 10 and 60 days before the meeting; must include time, place, and purpose

Proxy voting allowed: yes

Question 14

Director Regular Meeting

Answer 14

When: As board of directors or president directs

Where: anywhere

Notice None needed

Proxy voting allowed: no

Question 15

Director Special Meeting

Answer 15

When: As board or directors or president directs

Where: anywhere

Notice Notice required

Proxy voting allowed: no

Question 16

Actual Authority of director to bind the corporation generally arises when?

Answer 16

(1) proper notice was given for a directors meeting, a quorum was present, and a majority of the directors approved the action, or (2) there was unanimous written consent of the directors

Question 17

General shareholder power?

Answer 17

To elect the board of directors.

Unless the corporation’s articles or a shareholder agreement provides otherwise shareholders generally have no power to run the day-to-day affairs of the corporation.

Question 18

General board of directors power?

Answer 18

To run the day-to-day affairs of the corporation.

Question 19

Voting Trust

Answer 19

Any proper purpose, 15-year maximum but renewable, legal ownership of share is transferred to trustee; shareholders retain beneficial ownership.

Question 20

Voting Agreement

Answer 20

Any proper purpose, 15-year maximum but renewable, shareholders retain both legal and beneficial ownership.

Question 21

Business Judgment Rule

Answer 21

If the directors manage the corporation to the best of their ability in good faith, with the care that a person in a like position would exercise, and in a manner that they reasonably believe is in the best interests of the corporation, a court will not second-guess their decisions.

A person challenging director action has the burden of proving that the above standard was not met.

Under this rule there is a presumption that directors’ decisions are (I) made in good faith, and (ii) in the best interests of the corporation

Question 22

Requirements to bring a derivative action

Answer 22

A shareholder must have been a shareholder at the time of the act or omission complained of or must have become a shareholder through the operation of law (eg. inheritance). The shareholder must also fairly and adequately represent the interests of the corporation and must make a written demand on the corporation that it takes suitable action.

Question 23

Director discharging duties

Answer 23

In discharging duties, a director is allowed to rely on reports from (I) corporate officers whom the director reasonably believes to be reliable and competent, and (ii) corporate outsiders as to matters that the director reasonably believes to be within the outsider’s professional competence

Question 24

A director’s conflicting interest transaction will not be set aside if:

Answer 24

(I) the director discloses all of the material facts of the transaction and the deal is approved by a disinterested majority of the directors or (ii) the shareholders or (iii) the deal is fair

Question 25

When can you pierce the corporate veil?

Answer 25

(I) corporate formalities have been ignored and injustice has resulted; (ii) the corporation was inadequately capitalized; or (iii) it is necessary to prevent fraud.

Question 26

When is there personal liability of shareholders for corporate obligations?

Answer 26

(1) de jure corporation and can pierce the corporate veil; (2) there is a de facto corporation and can pierce the corporate veil; (3) there is no de jure corporation, no de factor corporation, and no corporation by estoppel

Question 27

Who’s opinions can directors rely on?

Answer 27

Generally the opinions of experts and corporate insiders.

*A reasonable person would not rely on the opinion of a person with a personal interest in the transaction.

Question 28

Can a corporation’s articles of incorporation limit or eliminate directors’ personal liability for money damages to the shareholders or corporation for actions taken?

Answer 28

Yes, but liability cannot be eliminated to the extent that the director (I) received a benefit to which he was not entitled, (ii)intentionally inflicted harm on the corporation or its shareholders, (iii) approved unlawful distributions, or (iv) intentionally committed a crime

Question 29

Promoter

Answer 29

A person who procures commitments for capital and instrumentalities on behalf of a corporation that will be formed in the future.

Question 30

Are promoters personally liable?

Answer 30

Generally, promoters are personally liable on all such contracts they enter into on behalf of the corporation to be formed.

Promoter liability continues even after the corporation is formed and even if the corporation also becomes liable on the contract by adopting it.

Exception: A promoter will not be liable on a pre-incorporation contract if the agreement between the parties expressly indicates that the promoter is not to be bound.

Question 31

Is signing “as agent for XYZ, Inc., a corporation to be formed determinative of the promoter’s liability?

Answer 31

No, under agency law such a signature would release an agent from liability on a contract that the agent entered into on behalf of a principal, but you cannot be an agent of a nonexistent principal.

Question 32

Can a corporation become liable on a promoter’s contract?

Answer 32

Yes, if it adopts the contract.

This adoption can be express or implied.

Question 33

Express adoption of promoter contract

Answer 33

requires express official action to adopt the contract with knowledge of the material facts, such as a resolution by the board of directors.

Question 34

Implied adoption of promoter contract

Answer 34

requires someone in authority to accept the benefits of the contract with knowledge of the material facts (eg. by acquiescence or conduct normally constituting estoppel)