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corporations Flashcards

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1
Q

beginning of corporation’s existence

A

a corporation comes into existence on the day the articles are filed unless a delayed effective date is specified

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2
Q

Articles of Incorporation (formal requirements)

A

Must contain:

corporate name

number of shares the corporation is authorized to isssue

address of initial registered office

name of registered agent at that office

name and address of each incorporator

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3
Q

Bylaws vs Articles

A

articles control in the event of any conflicts

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4
Q

amending bylaws

A

shareholders can do it

board of directors can unless

aoi forbid it; or
shareholders expressly provide that the board of directors can’t amend/repeal specific law

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5
Q

foreign corporation

A

a corporation incorporated in another jd

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6
Q

governing law

A

state of incorporation governs

internal affairs

interest holder liability of shareholders

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7
Q

LLC formation

A

articles of organization are filed with secretary of state; and

the company has at least one member

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8
Q

LLC operating agreement

A

governs

relations between members and llc

rights and duties of managers

activities and affairs of the company

means and condition for amending the operating agreement

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9
Q

promoter

A

a promoter is someone who acts on behalf of a corporation that has not yet formed

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10
Q

Promoter/preformation liability

A

A person is personally liable for any liabilities arising from their conduct when (1): he purports to act on behalf of a corporation and (2) actually knows that no corporation has formed absent (1): novation or (2): express contractual provisions stating that any liabilities created are those of the corporation and not the promoter.

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11
Q

Liability of a corporation for pre-incorporation contracts

A

Generally, a corporation is not liable for pre-incorporation contracts unless they are expressly or impliedly adopted.

Such a contract is impliedly adopted if (1): the corporation has reason to know of the contract’s material terms; and (2): accepts some benefit of the contract.

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12
Q

defective incorporation and owner liability

A

Under the RMBCA, promoters are not liable for pre-incorporation contracts unless they purported to be acting on behalf of a corporation and actually knew the corporation had not been formed.

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13
Q

De facto Corporation Doctrine

A

Limited liability protection will be afforded despite a defective filing if

(1): a good faith effort at incorporation was made;

(2): the company is otherwise eligible to incorporate; and

(3): some action was taken indicating that the entity considered itself a corporation.

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14
Q

incorporation by estoppel

A

any person that treated a business as though it were a corporation is estopped from denying its corporation status

dealing solely with the purported corporation and not relying on assets of individual promoters.

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15
Q

piercing the veil

A

Generally, shareholders, directors and officers are not personally liable for the liabilities of a corporation.

Veil can be pierced such that personal liability will be imposed if the corporation is acting as the alter ego of an individual such that there is little separation between the shareholder and the corporation such as when the corporate form is being used for personal reasons.

The corporate form is deemed to be treated as an alter-ego of its shareholders and members when such individuals siphon its assets rather than paying corporate debt.

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16
Q

mere instrumentality theory

A

members dominated the entity in such a way that LLC had no will of its own

members used that domination to commit a fraud or a wrong; and

proximate cause

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17
Q

unity of interest test

A

there is such a unity of interest between the entity and its owners that the entity didn’t have an independent existence and failure to pierce would be inequitable.

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18
Q

types of stock

A

common stock provides shareholders voting rights and the rights to receive dividends

preferred stockholders generally do not receive voting rights but entitle holders to be paid out first upon dissolution.

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19
Q

When may a corporation issue new stock after incorporating?

A

A corporation may issue new stock after incorporating so long as it is (1): authorized to do so by the articles; and (2): it receives some return value for the stock

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20
Q

par value (some states)

A

Some states require the corporation to state a par value for the shares upon issuance.

The par value is the minimum price at which a corporation may sell the stock initially.

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21
Q

preemptive right

A

shareholders’ right to buy a percentage of newly issued stock equal to her current ownership percentage before it is offered publicly.

under rmbca, such rights do not arise unless expressly referenced by the articles of incorporation

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22
Q

stock repurchases

A

Generally, a corporation can repurchase its own stocks unless restricted by the articles of incorporation

These distributions might be improper if they would make the corporation unable to pay its debts

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23
Q

record date

A

Before any shareholder meeting, either the board of directors or the bylaws must set a record date.

The record date can’t be more than 70 days before the meeting date

Only shareholders of record on the record date may vote at the meeting and only in proportion to the amount of shares held on the record date.

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24
Q

shareholders annual meetings

A

must hold one

time and place are set forth in the bylaws or, if not, at the corporation’s principal office.

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25
Q

special meetings

A

can be called by shareholders if they hold at least 10% of the voting shares (or up to 25% if specified by the Articles of Incorporation)

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26
Q

meeting notice

A
  1. between 10 and 60 days notice required
  2. must communicate date, time and place
  3. must describe any means of remote communication to be used
  4. should specify the record date
  5. for special meetings, should state the purpose
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27
Q

How can one waive the notice requirement for meetings?

A
  1. by delivering an express, signed waiver to the corporation.
  2. By attending the meeting without objecting to the lack of notice.
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28
Q

shareholder meetings quorum

A

Unless the articles of incorporation provide otherwise, a quorum is satisfied if a majority of shares entitled to vote are properly present

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29
Q

voting trust

A

shareholder transfers legal ownership of their shares to a trustee.

trustee acquires the right to vote the shares

participants retain all other rights of stock ownership.

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30
Q

voting agreement

A

shareholders agreed to vote their shares a certain way

writing signed by all parties.

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31
Q

proxy voting

A

a shareholder appoints a proxy to vote that shareholder’s shares in her place

must be in writing submitted to officer in charge of votes

generally revocable unless both

their terms say they’re irrevocable; and

they are coupled with an interest

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32
Q

directors election

A

usually elected annually at a shareholder meeting

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33
Q

How may a director resign?

A

Delivering written notice to:

the board
the board’s chairperson
corporation’s secretary

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34
Q

filling vacancies

A

subject to the articles of incorporation, vacancies will be filled either by shareholders; or the board of directors.

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35
Q

Actions of the board

A

The board of directors may act by

meeting

written consent; or

committee

36
Q

Board Action: Meeting; types of meeting

A

Regular; or

Special

37
Q

Regular Board meeting

A

does not require notice

38
Q

Special Board Meeting

A

Two day’s notice required

Must state time, date, and place of meeting to all directors

(no purpose required)

39
Q

Effect of Directors’ lack of notice

A

A director who (1): didn’t receive notice; and (2): didn’t waive lack of notice can void any action taken at the meeting.

40
Q

Meeting attendance

A

Generally, directors may participate by attending or using any remote communication method that allows for each to hear each other simultaneously.

41
Q

quorum (director meeting)

A

majority unless articles of incorporation expressly provide a number no fewer than one third.

42
Q

assent

A

a present director may avoid personal liability for the board’s action by indicating dissent or abstention.

a present director is deemed to assent to a corporation’s action under discussion at a meeting unless

he promptly objects
the director’s abstention is noted in the meeting minutes; or
he delivers written notice of dissent/abstention to the presiding officer during the meeting or to the corporation promptly after the meeting.

43
Q

board action: written consent

A

an act is deemed an act of the board if all directors sign a consent that describes the act; and the signed consent is delivered to the corporation.

44
Q

board action: committee

A

committee of fewer than quorum can commit the corporation to action

majority of board members must approve the committee and its members

committee must act in the scope of its authority

can’t:

approve distribution to shareholders unless within limits prescribed by full board

approve or propose to shareholders any act the shareholders must approve

fill board vacancies

adopt, amend or appeal bylaws.

45
Q

officers

A

run day to day operations of the business

specific officers that may be required by states

president
secretary
treasurer

officers required by MBCA

one officer to maintain required records

46
Q

officer appointment

A

Generally by the board of directors

but also, if authorized by the bylaws or the board, other officers

47
Q

officer authority

A

officers are agents of the corporation and may act with actual, apparent or inherent authority

48
Q

process for becoming an llc member

A

if an llc has not formed and only one member is planned, that person becomes a member by agreement with the organizer(s) (who may be that one member)

if an llc has not been formed and multiple initial members are planned, persons become members by agreement with each other.

If an llc has been formed, a person becomes a member by

any process in the operating agreement

merger or similar transaction
affirmative vote or consent of all existing members

any other means set forth in relevant statute.

49
Q

LLC dissociation

A

members may freely dissociate by notice of express will to withdraw.

also death or incapacity

50
Q

effect of dissociation

A

wrongful dissociation makes member liable to llc and its members for damages

ends the withdrawing person’s right to manage and conduct business as member

does not discharge withdrawing person from liability incurred while a member.

withdrawing person does not have a buyout right unless the operating agreement specifies one

withdrawing person retains his financial interest and accompanying right to future distributions

51
Q

LLC dissolution

A

Occurs when

called for in the operating agreement

all members consent; or
a court enters an order of dissolution.

52
Q

member-managed llc

A

presumption

equal rights in management and conduct

agents/authority to bind llc in ks it enters in the ordinary course of its business

53
Q

fiduciary duties: corporations and llcs

A

Generally, actors who manage and control a business in corporate form owe fiduciary duties to the business and the owners

54
Q

duty to act in good faith

A

duty not to break the law
duty to act on any red flags of corporate illegality

requires corporate directors to establish procedures to ensure compliance with legal norms, including

reporting systems providing timely, accurate information concerning the business’s

compliance with the law and
performance

55
Q

duty of care

A

requires reasonable care

duty to be attentive to corporation’s affairs

duty to make informed decisions and to take adequate proactive steps to become informed

Generally, a fiduciary must review information

actively participate in meetings

may reasonably rely on information provided by third party professionals, corporate officers and employees and board committees

56
Q

DUTY OF CARE LLC

A

some jds limit the duty of care to refraining from gross negligence or recklessness.

57
Q

business judgment rule

A

under this rule, a court will presume the director acted in good faith, upon reasonable information; and
in the best interests of the corporation

presumption can be rebutted

does not apply to breaches of good faith or loyalty

58
Q

duty of loyalty

A

avoid improper personal benefits; and

avoid conflicting interest transactions

59
Q

improper personal benefits

A

prevents a fiduciary from improperly personally benefiting in the conduct of business activity (such as exercising voting rights in a way that prevents lawsuits against you.)

60
Q

avoiding conflicting interest transactions

A

transaction in which the business is a party and:

the fiduciary individually is also a party;

the fiduciary knows of the transaction and has a material financial interest in it; or

the fiduciary knows a related person either is a party or has a material interest in the transaction

61
Q

material financial interest

A

a monetary interest that one could reasonably expect to impair or influence the fiduciary’s exercise of objective judgment

62
Q

related person

A

can include other business entities over which fiduciary has control

control

degree of influence or connection that could reasonably taint fiduciary’s objective judgment

power to remove majority of governing body

bearing the majority of the risk of loss or financial gain from an entity’s business.

63
Q

safe harbor

A

A fiduciary may escape liability for a conflicting interest transaction if:

the board of directors approve it

the shareholders approve it, or

the transaction is objectively fair to the corporation.

64
Q

board or shareholder approval

A

can validate a conflicting interest transaction only if (1): fiduciary discloses all material facts and (2): majority of disinterested shareholders or directors approve the transaction.

65
Q

corporate opportunity doctrine

A

Under it, a fiduciary must not take personal advantage of a business opportunity if (1): the fiduciary should reasonably believe that the other party expects the opportunity to be offered to the corporation

66
Q

business judgment rule

A

applies in the context of approval of conflicting interest transactions only if a majority of disinterested directors are

67
Q

corporate opportunity doctrine

A

Generally, a fiduciary must not take advantage of a business opportunity that (1): involves a line of business which the entity either currently engages or will in the future unless (2): the opportunity is first presented to the entity; and (3): the entity ultimately rejects it by a vote of a majority of disinterested directors after full disclosure of all material facts;

68
Q

fiduciary duties of shareholders in a close corporation

A

shareholders in a close corporation owe fiduciary duties only to the extent that they take on traditional roles of corporate governance and directorship.

69
Q

majority shareholders can’t oppress minority shareholders

A

depleting corporate coffers for their own exorbitant salaries

refusing to have the corporation employ minority shareholders

70
Q

share transfer restrictions

A

limit shareholders ability to sell shares (to ensure that the close corporation stays within the control of certain shareholders)

to be enforceable, the restriction must be reasonable utc

such a restriction is reasonable if it
requires a shareholder to obtain prior approval from board or other shareholders

provides a corporation a right of first refusal; or

requires the seller to sell to existing shareholders at a specified price.

71
Q

binding effect of share transfer restriction on transferee

A

Restriction is binding against transferee if (1): it is authorized by the corporation’s governing documents and either (a): noted conspicuously on the stock certificate; or (b): the transferee took with actual notice of the restriction.

72
Q

Resolving Deadlock

A

Deadlock can be resolved in a close corporation through:

buy-sell agreements

third party intervention

special class shares

state corporate statute remedies

73
Q

buy sell agreements

A

an agreement that (1): the corporation or other shareholders will purchase a particular shareholders shares (2): in the event of irreconcilable deadlock

74
Q

special class of shares

A

the aic may designate a special class of shares to cast the deciding vote in the event of a tie.

75
Q

state corporate statute remedies

A

court might appoint custodian to break tie if other mechanisms fail to break deadlock.

76
Q

Amending Articles

A

Directors must initiate

shareholders must approve

77
Q

amending bylaws

A

Shareholder power shared with board unless

AIC reserves the power to shareholders exclusively or

shareholders in amending, repealing or adopting, expressly reserve that the board may not amend, repeal or adopt.

78
Q

shareholder approved bylaw dealing with director nominations

A

may not limit board’s power to amend, add or repeal any procedure or condition to such a bylaw to provide for a reasonable, practicable and orderly process.

79
Q

merger

A

two corps combine

one corp survives and the other ceases to exist

shareholders in the dissolving entity exchange their shares for shares in the surviving entity

80
Q

appraisal rights

A

right of dissenting shareholder to compel corp to buy back stock at judicially determined fair market value after some extraordinary corporate event.

81
Q

when do appraisal rights arise in the context of a merger?

A

when shareholder approval is required for the merger and the shareholder’s shares would not be outstanding post-merger; and

when a subsidiary merges with a parent or with another subsidiary under a common parent

82
Q

how must one exercise appraisal rights

A

written notice before vote

can’t vote shares in favor of merger

corporation must pay fair market within 30 days

if shareholder properly disputes payments amount, corp must initiate judicial proceedings to determine amount within 60 days of

83
Q

voluntary dissolution

A

board of directors adopt a resolution authorizing dissolution

shareholders approve dissolution

corporation files articles of dissolution with secretary of state

84
Q

after dissolution

A

corp may not undertake new business

must continue operating to wind up

85
Q

winding up

A

collecting and disposing of corporate assets

making provisions to pay creditors

concluding any pending litigation

distributing assets to shareholders

86
Q

distributing assets to shareholders

A

creditors before shareholders

87
Q

statutory procedure for discharging known claims

A

notice of dissolution instructing claimants to send their claims in writing to a specified address

include deadline of no less than 120 days after notice;

state claim will be barred if not received by deadline

claim is barred if claimant doesn’t meet submission deadline; or

corporation rejects claims and claimant fails to sue within 90 days.

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