Corporations

Question 1

How to create a corporation?

Answer 1

execute an article of incorporation & deliver to secretary of state

Question 2

What needs to be in an article of incorporation?

Answer 2

1) Name of the company
2) Name and address of each incorporator
3) Name and address of the registered agent
4) information regarding stock

Question 3

What is a B Corp?

Answer 3

Benefit Corporation, Corporation with 2 purposes – to benefit sharholders, but also to pursue a broader benefitial goal

Question 4

What is S Corp?

Answer 4

Corp can avoid double taxation, but must be less than 101 shareholders, all persons and U.S. citizens and Corp is not publicly traded.

Question 5

What is a De Facto Corp?

Answer 5

Arises when shareholders failed to register a corporation. Allows to treat this business (partnership) as a corporation for all purposes (except in an action by state)
Required:
1) Good faith attempt to comply with filing
2) Act as a Corp
3) Not aware of failure to register

Question 6

What is a Corporation by Estoppel?

Answer 6

a business will be treated as a corporation for those poeple who treated it as a corporation

Question 7

What is a prerequisite for a Corp to sue someone in a state not of its incorporation?

Answer 7

It was register within the state, pay fees, and appoint a registered agent

Question 8

What is a subscription?

Answer 8

a written offer to buy stock

Question 9

Is a subscription revokable?

Answer 9

if it is pre-incorporation – irrevokable for 6 months
if post-incorporation – revokable

Question 10

What is an issuance?

Answer 10

When a Corp sells its stock. Must sell for consideration, and not less than minimum price. Otherwise directors and buyer will be liable.

Question 11

What is a preemptive right?

Answer 11

A right to buy shares to not be diluted when new ISSUANCE FOR MONEY occurs.

Question 12

Who removes directors?

Answer 12

Shareholders.

Question 13

Can article of incrporation list directors?

Answer 13

Yes. If not listed, than incorporators choose the board

Question 14

How often does the board change?

Answer 14

Each year

Question 15

Can shareholders remove directors prior to their term?

Answer 15

Yes, for cause or without cause.
NOTE: in staggered board (3x3x3) can only remove director prior to term for cause.

Question 16

Who selects directors?

Answer 16

Shareholders select them at the end of a term or if they removed.
If resigned - directors or shareholders can appoint

Question 17

How does a board of directors act?

Answer 17

1) unanimous agreement in writing
2) majority vote at a valid meeting

Question 18

What are meeting requirements?

Answer 18

1) Quorum - majority of directors present
2) if special meeting needs notice at least 2 days prior

Question 19

What fiduciary duties directors owe?

Answer 19

1) Use care that person in like position would reasonably believe appropriate under circumstances; AND
2) Discharge duties in good faith & with reasonable belief that actions are in best interest of Corp.

Question 20

What is nonfeasance and misfeasance?

Answer 20

Nonfeasonce is failure to act
MIsfeasance is make a decision that hurts a business

Question 21

Business Judgment Rule elements?

Answer 21

1) rational
2) informed
3) decision in good faith

Question 22

When a self-dealing trasnsaction will not be enjoined?

Answer 22

1) it was approved by a majority of disinteredsted directors; or
2) it was approved by a majority of disinterested shareholders
3) it was fair to the corporation

Question 23

Can a director usurp a corporate opportunity?

Answer 23

Only if it informs the board of an opportunity and receives their rejection

Question 24

What is a Corp Opportunity?

Answer 24

1) something that the Corp has interest or expectancy in
2) something that the director found using Corp’s resources

Question 25

Is direcor laible for acts of the board?

Answer 25

Yes, unless
1) director was not present
2) relied in good faith; or
3) dissent was noted in writing

Question 26

When can shareholders run a corporation?

Answer 26

in close-held corporations (small number of shareholders & stock is not publicly traded)

Question 27

Do directors own fiduciary duties to other directors?

Answer 27

No

Question 28

in PC, are professionals liable for their malpractice?

Answer 28

Yes, because its a personal tort.

Question 29

In PC, are shareholders liable for debts?

Answer 29

No.
other shareholders/ partners also not liable for another’s malpractice

Question 30

What is a Piercing of a corporate veil

Answer 30

1) allows to sue shareholders for debts of Corp.
2) APPLIES ONLY in close held corporations
Elements:
1) shareholders abused the privilege of incorporating
2) fairness requires holding them liable

Question 31

What is a derivative suit?

Answer 31

shareholder sues to enforce to enforce Corp’s claim

Question 32

Who gets the money from derivative suit?

Answer 32

the Corporation

Question 33

Requirements to brinmg a derivative suit

Answer 33

1) stock ownership when claim arose (or passed through inheritance or divorce)
2) written demand to directors to sue (wait 90 days) unless futile
3) adequate represntation of Corp’s interests

Question 34

Can you settle a derivative suit?

Answer 34

Only with court’s approval

Question 35

what is a lifespan of proxy?

Answer 35

11 months after written note sent to a secretary of corporation

Question 36

Shareholder S allowed B to vote S’s shares. The note said that such right is valid for 11 months and is irrevocable. If S attends the next meeting and decides to vote, can it do it?

Answer 36

Yes. revocation is proper either by writing or by attendance.

Question 37

What makes proxy irrevocable?

Answer 37

1) must state it is irrevocable
2) must be combined with an interest in shares

Question 38

Is a quorum destroyed if shareholders leave?

Answer 38

No (unlike directors meetings)

Question 39

vote a director needs to get elected

Answer 39

plurality (more than others)

Question 40

How many shares need to vote for anything?

Answer 40

majority of those shares that voted.

Question 41

what is cumulative voting?

Answer 41

a system of voting in an election in which each voter is allowed as many votes as there are candidates and may give all to one candidate or varying numbers to several.

Question 42

How many votes needed to approve a fundamental corporate change?

Answer 42

majority of the shares entitled to vote

Question 43

What is right of appraisal?

Answer 43

right to be bought out
Price of shares plus acrued interest

Question 44

When canshareholders petition for involuntary dissolution?

Answer 44

1. Direct abuse, waste of assets, or misconduct
2. directors are deadlocked and irreperable injury is threathed.
3. shareholders failed to elect one or more directors

Question 45

What steps must be taken to wind up corporation?

Answer 45

1. five written notice to known creditors and publish notice of dissolution in a newspaper
2. gather all assets
3. convert assets to cash
4. pay creditors
5. distribute remaining sum to shareholders.

Question 46

What are the defenses to breach of duty of loyalty (self-dealing)

Answer 46

1. Majority of disinterested directors apporved (knowing all material facts)
2. Majority of votes intitled to be cast by disinterested shareholders approved (knowing all material facts); OR
3. the transaction was fair

Question 47

Exculpatory provisions do not protect from:

Answer 47

1. director received a benefit to which he was not entitled
2. intentionally inflicted harm on the corporation or its shareholders
3. Approved unlawful distributions
4. intentionally committed a crime
   (does not protect from breach of duty of loyalty)

Question 48

Elements of the business judgment rule

Answer 48

1. acted in good faith
2. with the care that a person would exercise in a like position;
3. in a manner the director reasonably believed to be in the best interest of the corp.