Corporations Flashcards
When can a corporation issue dividends
When the company is not insolvent, it will not become insolvent as a result of the dividend and the board approves them.
What is required for a board action to be valid?
They must have a quorum, which is a majority unless the bylaws say differently.
How many board members must vote for something to pass?
A majority of those present, it must be a quorum.
What is the right to inspect?
A shareholder has the right to inspect the major documents, nut they must have a proper purpose. Must give written notice and at least five days ahead.
What is a proper purpose for a shareholder?
A purpose related to the shareholder’s interest in the corporation
What is required to compel a dividend ?
Avalible funds and Bad faith by the BOD
How does shareholder direct action work?
A shareholder may sue the board or an officer for breach of fiduciary duty. They get the recovery.
What is a derivative suit?
The shareholder sues a third party on behalf of the corporation.
What are the requirements for a derivative lawsuit?
- Shareholder must have been a shareholder when the injury occurred
- Must give notice to the boar unless it would be futile (90 days)
What is the Business Judgement Rule?
Provides directors imunity where they were acting in good faith.
What is a De Jure Corporation?
When everything is properly executed you have a De Jure Corporation
What is a De Facto Corporation?
When the parties attempt to exicute a corporation but fail for some reason, they may form a De Facto Corporation if they were acting in good faith and were unaware of the failure
What is Corporation by Estoppel?
Corporation by Estoppel says that if parties are dealing with an entity as a Corporation, they are estopped from claiming it is not one.
What is required for a General Partnership?
A GP is formed when two or more people operate a business as co-owners. It does not require formal agreement.
What is Partnership Indemnification>
Where a partner incurs liability in the service of the partnership, the partnership is liable for indeminifcation.
When can you piece the corporate viel?
There is no hard rule, courts look at the totality of the circumstances and may consider:
- undercapitalization
- Disregard formalities
- intermingling of assets
- self-dealing
- fraud
What is the Deep Rock doctrine?
Where piercing the corporate veil is appropriate, loans made by shareholders may be subordinated to other loans.
What is special about a controlling shareholder?
A controlling shareholder owes a fiduciary duty to all other shareholders not to wield power in a way to disadvantage them.
What is the director’s duty of care?
A director owes a duty of care to act in good faith as a reasonable prudent director.
What are the rules on shareholder proxies?
It must be in writing and sent to the corporation or its agent. Presumed to be 11 months and presumed to be revocable.
What Suits may a shareholder bring?
Direct action or Derivative Action
What is a direction action Suit?
A suit to enforce share holder rights, typically voting rights, failure to declare a dividend or merger
What is a Derivative action?
A suit to enforce the rights of the cooperation against a third party (might be a director or board members)
What is required for a derivative action?
- Standing: must have been a shareholder when the injury occurred
- Demad of the board, unless it would be futile
Board may reject or dismiss in good faith BJR applies
Shareholder gets litigation expenses
