CORPORATIONS Flashcards
Articles of Incorporation are filed with
the STATE
If Articles are in conflict with bylaws, what controls?
ARTICLES CONTROL
Is a corporation liable for a contract entered into prior to the incorporation?
NO, unless it expressly or impliedly adopts (ratifies) the contract
Promoter
the person entering teh contract on behalf of the to be formed corporation is LIABLE
Shareholders
only OWNERS
do NOT manage the corporation
annual meetings
Written notice of Shareholder Meetings is required ___ to __ days prior
10 to 60 and must state the time, place, and purpose of the meeting
Voting By Proxy
Shareholders may vote by proxy (have someone vote theri shares for them) OR by voting agreement
** Directors may NOT vote by proxy or agreement
Quorum
majority of outstanding shares required to vote must be present to hold a vote
Directors
manage the corporation and (like shareholders) act as a body by voting
Who hires and fires directors?
SHAREHOLDERS
How do we analyze whether the director of a corporation OR member of an LLC breached the duty of care or loyalty?
fact-based approach
business judgment rule
Business Judgment Rule
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
Who has burden of proving director breached their duty?
party claiming director breached their duty
Duty of Loyalty
director must have in goood faith with a reasonably belief that what he does is in the corporation’s BEST INTEREST
Duty of Loyalty arises THREE WAYS (BCC)
Director is on BOTH sides of the transaction (material financial interest & knoweldge of that interest)
COMPETES with the corporation
CORPORATE opportunity
Defenses to a Breach of Duty of Loyalty
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
Can an LLC waive the duty of loyalty in operating agreement?
Yes, MAY waive so long as it is not manifestly unreasonable
In order for a resolution (voting) to pass, there needs to be ____ present and ______
QUORUM
MORE VOTES MUST BE CAST IN FAVOR THAN AGAINST IT
Who Votes?
The record owner on the record date (persons who were registered as sharehodlers “of record” on that date)
UNLESS SHAREHOLDER
* dies
* proxy
Can a shareholder orally ask someone to serve as a proxy?
No
Is a proxy generally revocable?
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
Shareholder v. Corporation
The acts of directors are illegal, fraud, or unfair to either he corporation or the shareholder
Direct Suits v. Derivative Suits
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)
Three Requirements to File a Derivative Lawsuit (SAD)
- STANDING to bring a lawsuit
- Adequacy (shareholder represents interets of the corporation)
- 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)
Lawsuits Against Shareholders
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
Right to Inspect Corporate Books
who?
what?
Who? Shareholders
What? good faith and proper purpose - reasonably related to a person’s personal interest as a shareholder
LLCs Formation, Rights and Duties
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)
Disassociation of LLC
if member leaves, then it leads to disassociation of that member but does not lead to winding up or dissolution unless unanimously agree
Liability of LLC
not personally liable for losses, liable if PTV or if proper procedures for dissolution and winding up have not been followed
