Corporations

Question 1

Corporation must pay registration fee and file Articles of Incorporation with the State Corporation Commission which must contain:

Answer 1

1) Name of Corp including designation that it is a corporation
2) Number of authorized shares
3) Registered agent and office

Question 2

Liability of Shareholders in Corporation

Answer 2

Shareholders generally not personally liable for debts of corporation.
Not absolute however - PCV:
Ct may disregard corporate entity and hold SH personally liable for the debts of the corporation if: 1) the shareholders fail to observe the separateness of the corporation (i.e. alter ego) and 2) use the corporation to perpetrate fraud or injustice.

Question 3

Distribution of Profits/Losses

Answer 3

Owners (shareholders) issued stock based on % ownership, and directors may issue dividends to SH based on number of shares
Losses not born directly by SH, but value of shares may go down.

Question 4

Taxation (S corp and C corp)

Answer 4

C Corp taxed at two levels: corporation taxed on income as earned, and shareholders pay tax on dividends when paid
S corp does not pay tax on income as earned. Income is passed through to the shareholders who pay taxes on income as earned.

Question 5

Board Meetings / Voting / Compensation

Answer 5

Any action designed to affect the property and business of a corporation should be taken only by formal resolution of the BoD at a fully constituted meeting

Quorum is required for directors to do business at a meeting. Quorum = majority of directors.
If theres quorum, resolution passes with a majority vote of directors present

BOD fixes the compensaiton of the directors unless provided o/w by AoI or bylaws

Question 6

Business Judgment Rule

Answer 6

Directors have duty to manage the corporation. In managing the corporation, the direcotrs are protected from liability by the BJR.

BJR is presumption that directors manage the corporation in good faith and in the best interests of the corporation and its shareholders. As such, directors will not be liable for innocent mistakes of business judgment.

Question 7

Fiduciary Duties

Answer 7

Directors are fiduciaries who owe the corporation a duty of care and duty of loyalty.

Duty of care: act with care of prudent person would use with regard to their own business (unless AOI have limited director liability for breach of DoC)

Duty of Loyalty: 2 instances:
1) Director may not receive an unfair benefit to the detriment of corporation or its shareholders (Cure: material disclosure and independent ratification)
2) Director may not divert to himself a business opportunity in which his corporation reasonably may be interested without first giving corporation a chance

Question 8

Liability of Directors

Answer 8

Liable to Corporation for breach of duty of loyalty and duty of care (unless BJR) and unless AOI limit director liability - but limit DN apply to willful misconduct

In derivative suit or class action, directors cannot be liable for damages grater than a limit in the articles; or 100k or 12 months compensation (unless willful misconduct)

Question 9

Shareholder Meetings

Answer 9

Corp must notify shareholders of the date, time, and place of each annual and special SH meeting no less than 10 days nor more than 60 days before the meeting

Annual meetings may be held anywhere

Question 10

Voting of Shareholders at Annual Meeting

Answer 10

Quorum must be present. Under VSCA, AOI can provide for lesser or greater quorum requirement for SH as long as the change is not less than 1/3 of the shares eligible to vote.

To approve ordinary matter where quorum is present, votes cast in favor must exceed votes cast against