CORPORATIONS

Question 1

Articles of Incorporation are filed with

Answer 1

the STATE

Question 2

If Articles are in conflict with bylaws, what controls?

Answer 2

ARTICLES CONTROL

Question 3

Is a corporation liable for a contract entered into prior to the incorporation?

Answer 3

NO, unless it expressly or impliedly adopts (ratifies) the contract

Question 4

Promoter

Answer 4

the person entering teh contract on behalf of the to be formed corporation is LIABLE

Question 5

Shareholders

Answer 5

only OWNERS

do NOT manage the corporation

annual meetings

Question 6

Written notice of Shareholder Meetings is required ___ to __ days prior

Answer 6

10 to 60 and must state the time, place, and purpose of the meeting

Question 7

Voting By Proxy

Answer 7

Shareholders may vote by proxy (have someone vote theri shares for them) OR by voting agreement

** Directors may NOT vote by proxy or agreement

Question 8

Quorum

Answer 8

majority of outstanding shares required to vote must be present to hold a vote

Question 9

Directors

Answer 9

manage the corporation and (like shareholders) act as a body by voting

Question 10

Who hires and fires directors?

Answer 10

SHAREHOLDERS

Question 11

How do we analyze whether the director of a corporation OR member of an LLC breached the duty of care or loyalty?

Answer 11

fact-based approach
business judgment rule

Question 12

Business Judgment Rule

Answer 12

presumption that in making a business decision the directors acted on an
1. INFORMED BASIS (reasonably believe)
2. IN GOOD FAITH; and in the
3. HONEST BELIEF that an action taken was in the BEST INTEREST OF THE COMPANY

Question 13

Who has burden of proving director breached their duty?

Answer 13

party claiming director breached their duty

Question 14

Duty of Loyalty

Answer 14

director must have in goood faith with a reasonably belief that what he does is in the corporation’s BEST INTEREST

Question 15

Duty of Loyalty arises THREE WAYS (BCC)

Answer 15

Director is on BOTH sides of the transaction (material financial interest & knoweldge of that interest)

COMPETES with the corporation

CORPORATE opportunity

Question 16

Defenses to a Breach of Duty of Loyalty

Answer 16

Three Safe Harbors
1. approval by distinterested directors
2. approval by disinterested shareholders, or
3. if transaction judged to be fair at time entered into

Question 17

Can an LLC waive the duty of loyalty in operating agreement?

Answer 17

Yes, MAY waive so long as it is not manifestly unreasonable

Question 18

In order for a resolution (voting) to pass, there needs to be ____ present and ______

Answer 18

QUORUM

MORE VOTES MUST BE CAST IN FAVOR THAN AGAINST IT

Question 19

Who Votes?

Answer 19

The record owner on the record date (persons who were registered as sharehodlers “of record” on that date)

UNLESS SHAREHOLDER
* dies
* proxy

Question 20

Can a shareholder orally ask someone to serve as a proxy?

Answer 20

No

Question 21

Is a proxy generally revocable?

Answer 21

Yes even if states irreocavle, and any action inconsistent with grant of proxy works to revoke it (last proxy given revokes all previous proxies)

UNLESS explicitly states & coupled with an interest

Question 22

Shareholder v. Corporation

Answer 22

The acts of directors are illegal, fraud, or unfair to either he corporation or the shareholder

Question 23

Direct Suits v. Derivative Suits

Answer 23

Direct (appropriate when worng doen amounts to breach of duty to the individual PERSONALLY)

Derivative (appropriate when injury is caused to the CORPORATION and sharehodler trying to enforce corporation’s rights)

Question 24

Three Requirements to File a Derivative Lawsuit (SAD)

Answer 24

1. STANDING to bring a lawsuit
2. Adequacy (shareholder represents interets of the corporation)
3. Demand (generally SH should file a written demand and wait 90 days before filing a suit unless injury wuold result or a demand would be futile)

Question 25

Lawsuits Against Shareholders

Answer 25

PIERCE THE CORPORATE VEIL
only allowed in CLOSE CORPORATIONS and LLCs

Plaintiff must show that the shareholders of the corporation or members of an LLC
* abused the privilege of incorporation AND
* fairness requires holding them liable

example: commingling assets

brings personal liability

Question 26

Right to Inspect Corporate Books

who?
what?

Answer 26

Who? Shareholders

What? good faith and proper purpose - reasonably related to a person’s personal interest as a shareholder

Question 27

LLCs Formation, Rights and Duties

Answer 27

Formation - Articles of Organization

Duties? fiduciary duties member-managed are treated like agents to the LLC (with actual and apparent authority to bind the LLC)

Question 28

Disassociation of LLC

Answer 28

if member leaves, then it leads to disassociation of that member but does not lead to winding up or dissolution unless unanimously agree

Question 29

Liability of LLC

Answer 29

not personally liable for losses, liable if PTV or if proper procedures for dissolution and winding up have not been followed