Corporations

Question 1

Corporation (Managment)

Answer 1

Corporations have centralized management rights that are left to a board of directors who delegate day-to-day management to corporate officers. Management is generally not spread among owners.

Question 2

Corporation (Limited Liability)

Answer 2

Only the corporation itself can be liable for its obligations. (Shareholders, board members, and officers are generally not liable for corps obligations, although there are exceptions)

Question 3

Corporation (Transfer of Ownership)

Answer 3

Shareholders can freely transfer their ownership interests (shares) unless prohibited by articles or bylaws

Question 4

Corporations (Generally)

Answer 4

Corps can exist in perpetuity; changes in ownership do not affect the corp’s existence.

Corps are considered “people” for most intents and purposes and are entitled to certain constitutional protections.

Question 5

Corporations (Formation)

Answer 5

Corporation is formed when articles of incorporation are filed with the state.

Corporations also create bylaws which are rules for managing the corp, which provide for ordinary business conduct.

If articles and bylaws conflict, articles control.

Question 6

Pre- incorporation - Transaction and Liability (Promoters)

Answer 6

Promoters are personally liable for K he enters into on behalf of the not yet formed corporation and remains liable after formation.

Except: when novation or indemnification occurs

Question 7

Pre-incorporation - Transaction and Liability (Corp Liability)

Answer 7

Corps generally has no liability based on pre-incorproation contracts entered into by promoters.

Question 8

Consequence of Ultra Vire Acts (acting outside of its stated purpose)

Answer 8

Shareholders may sue you, corp may sue an officer or director for the ultra vires act for resulting damage, state action (state may bring action to dissolve the corp).

Question 9

De Facto Corp

Answer 9

Where a corps formation fails, but it carries itself as a corp, it may still be treated as a properly formed corp if:

(1) a corporate law exists under which the entitle could have become legally incorporated,
(2) a good faith effort to comply with the states incorporation law; and
(3) the business acted like a corp

Question 10

Corporation by Estoppel

Answer 10

Persons who treat the business as a corp are estopped form denying the entitle is a corp, particularly in order to avoid liability.

Question 11

Piercing the Corporate Veil

Answer 11

Shareholders, directors and officers can be held liable if (but only those involved in active management will be held liable):

(1) ignored corporations formalities,
(2) inadequate capitalization, and
(3) fraud or illegallity

Question 12

Corporate Securities

Answer 12

Corps can get funding through: (1) stocks) and (2) bonds.

Question 13

Corporate Securities - Stocks

Answer 13

Authorized Shares – Max number of shares the corp may issue

Issued/Outstanding Shares – shares that have been sold to investors

Reacquired Shares – Those that the copy buys back

Question 14

Varying Rights in Shares & Consideration For Shares

Answer 14

Shares authorized by corp can have different rights, preferences, and limitations depending on the class of shares.

Articles can define almost any kind of differentiation between share classes; differences between share classes often involve: (1) rights to distributions or/dividends, (2) nature of voting rights and (3) preference with regard to distributions.

Question 15

Shareholder Authority

Answer 15

Shareholders exert control over the corp through their power to elect directors, amend bylaws and approve fundamental changes.

(1) Can remove and elect directors
(2) Can amend of repeal bylaws.
(3) Shareholders must approve of fundamental changed to the corps structure.

Question 16

Shareholder Inspection Rights

Answer 16

Shareholders may inspect the corps books for a proper purpose upon written (5 days) notice).

A purpose is proper if it reasonably related to a persons interest as a shareholder.

Question 17

Shareholder Meeting

Answer 17

Annual meetings are held for election directors and other special matter.

Special meetings may be called to conduct business requiring shareholder approval.

Notice of a meeting must be sent to shareholders eligible to vote.

Question 18

Shareholder Voting (Quorum)

Answer 18

At least a majority of the shares entitled to vote must be present.

Question 19

Shareholder Voting (BoD elections)

Answer 19

Directors are elected by the plurality; cumulative voting may be sued if allowed by the articles.

Question 20

Shareholder Voting (Proxys)

Answer 20

Shareholders can vote their share via proxy executed by writing.

Appointment of a proxy is generally revocable unless it is coupled with an interest and clearly states that it is irrevocable.

Question 21

Shareholder Direct Suit

Answer 21

Where a corp caused harm personally to a shareholder.

Question 22

Shareholder Deriviatesuti

Answer 22

Where a shareholder sues to enforce the corps right when the corp has a cause of action.

Requirements:
(1) Standing – shareholders must have been shareholders at time of wrong
(2) Recovery – goes to corp but shareholders may recoup legal expenses
(3) Written Demand Required – shareholder must make a written demand on the cop and wait 90 days before filling suit

Question 23

Directors Responsibility

Answer 23

Board may hold special or regular meetings.

Notice – Regular meetings can be held without notice but special meetings require 2 days
Quorum – usually set in AOI but if not, majority of the number of directors in the corp
Action without meeting – allowed if all directors provide written consent

Question 24

Directors Delegating Authority

Answer 24

BoD does not run day-to-day of the corp but rather delegated the day-to-day to managers, can also make committees.

Committees however cannot make major corp decision that require full BoD consent.

Question 25

Directors owe Duty of Care (BJR)

Answer 25

Courts will not second guess a poor decision made by a director or officer if the decision was:

(1) made in good faith,
(2) with the care a person in a like position would believe appropriate under similar circumstances; and
(3) in a manner the director/officer reasonably believed to be in the best interest of the corp.

Question 26

Liability for Breach of Duty of Care

Answer 26

Can be held personally liable, however articles can limit personal liability, EXCEPT:

(1) intentional violations of criminal law,
(2) unlawful corp distributions,
(3) receiving entitled financial benefit, or
(4) intentionally inflicted harm on corp or its shareholders.

Question 27

Duty of Loyalty

Answer 27

Arises when a conflict of interest or a corp tries to usurp a business opportunity.

Corporate opportunities –
(1) Corp would have interest in expectancy in the opportunity; and
(2) officer/director does not give corp opp to act first.

Question 28

Duty of Loyalty (Safe Harbor)

Answer 28

Officer/director with a potential conflict of interest in a transaction will not be personally liable if either:

(1) fair to the corp giving opp at the time or
(2) approved after material facts have been disclosed by, either (a) disinterested shareholders or (b) a majority of disinterested board members.

Question 29

Mergers

Answer 29

A merger occurs when two or more companies combine, one of the companies may be absorbed or a new company can be created.

Require board vote (majority) and shareholders (majority).
Dissenting shareholder can challenge the merger or demand payment for their shares at a fair value.

Question 30

Dissolution

Answer 30

Termination of the coprs existence. Corp consents to exist while it winds up and liquidates its affairs but no other business may be carried out.

Voluntary dissolution is considered a fundamental change and requires both board and shareholder approval.

Question 31

Disposition of Property

Answer 31

Where corp sells, leases, or otherwise disposes of all or substantially all property outside the regular course of business.
Deemed a fundamental change and requires board and shareholder approval.