Corporations Flashcards
Who is in charge of management?
Board of directors
Agents that carry out corporations policy
officers
Requirements of a corporation
person - incorporator
paper - articles of incorporations
act - deliver articles w/ requires fees to SOS
(once accepted - FORMED)
What must the paper (articles of incorporation include?)
-magic words - corporation, company, incorporation, limited
-name & address of registered agent & address of office
- info re: stock (authorized stock)
Organizational meeting
- adopt bylaws (internal docs - board/shareholders can amend)
- appoint officers
Consequences of forming a corporation
Limited liability - shareholders generally only liable for their stock.
double taxation
entity status
internal affairs rule - law governed by state of incorporation
Corp borrows money?
Bond
Corp sells ownership interest
stock
requirements for directors
- adult natural persons
- one or more
- initial directors names in articles/elected by incorporators
- shareholders elect thereafter
methods of board action
- unanimous agreement in writing
- at a meeting
notice for meetings?
regular meeting? no notice
special - 2 days written notice, time, place, date
Meeting requirements
Quorum - majority of all directors
majority of those present required to pass resolution
fiduciary duties of directors to corporation
- Duty of loyalty
- Duty of care
Duty of loyalty
discharge duties in good faith and reasonable belief that actions are in best interest of the corp.
- self-dealing/interested director transaction
- competing ventures
- corporate opportunity (expectancy)
Usurp - tell board and wait for them to reject.
duty of care
burden on the plaintiff
- nonfeasance - director does nothing (liable only if hurt corporation…causation must be shown)
- misfeasance - board makes decision that hurts corp.
use the care that a person in the like position would reasonably believe appropriate under circumstances
Can corp make a loan to director?
only if reasonably believe for it to benefit corp.
Can one person hold multiple positions
yes
officers are selected and removed by
the board
who hires and fires directors
shareholders
indemnification*
(1) corp cannot indemnify (D/O) held liable to corp or improper benefit
(2) corp must indemnify (D/O) successful in defending merits otherwise
(3) corp may indemnify (D/O) shows acted in good faith.
- Articles can eliminate d/o liability only for duty of care cases.
When can shareholders manage?
Closely help (close) corp.
- Small # of shareholders
- stock not publicly traded
- shareholders can manage directly
- special duty - utmost good faith (shareholders to other shareholders)
Professional corporation
pc, ca
- corp where directors, officers & shareholders are licensed professionals
- not liable for each others malpractice.
Gen rule for shareholder liability to debt
shareholder not liable for corporation debt unless piecing the corporate veil!
Piercing the corporate veil*
only for close corp.
- shareholders have abused privilege of inc.
- fairness requires holding them liable/
2 common fact patterns
- alter ego
- undercapitalization
(courts may be more willing to piece the veil for tort victim than for a contract claimant).
derivative suit
shareholder sues to enforce corporations claim
derivative suit outcome if plaintiff wins
money goes to corporation
plaintiff recovers costs and fees only
requirements to bring a derivative suit
stock ownership when claim arose
adequate representation on corp’s interest
written demand on corp.
ct. approval required to settle or dismiss.
authorized stock
max number of shares a corp can sell
issued stock
number of shares corp. actually sells
outstanding stock
shares issued & not reacquired
record shareholder
person shown as stock owner in corporate records
record date
voter eligibility cutoff date
when do you have a vote?
when you own a stock on record date.
Proxy
writing authorizing another to vote the shares (11 month generally)
revoked by - writing or attend meeting and vote.
irrevocable proxy
must say
interest in stock other than voting
voting trust
req.
- writtten agreement controlling how shares will be voted
- give copy of agmt. to corp.
- transfer legal title to voting trustee
- give og shareholders trust certificates
voting (pooling) agreements
in writing & signed
shareholder voting
mtg (req)
unanimous vote
notice for shareholders
writing delivered by 10-60 days before
special - purpose
How they vote? shareholders
Quorum - majority of shares
- not broken
- to elect director (plurality)
- remove director (majority)
cumulative voting
method to give small shareholders better chance of electing someone to the board.
- number of shares x number of directors to be elected
are restrictions on stock transfer allowed
yes if not an absolute restraint on alienation
right to inspect
shareholders right to review corp’s books and records on written demand
distributions
payments from corp. to shareholders (in boards disctrtion)
- corp cannot do if it would render corp insolvent
who is liable for impropert distribution
directors and corp. joint and several.
exception - good faith
Fundamental corporate changes
-amending articles
- mergers and consolidations
- transfer of all or substantially all assets
- conversion
- voluntary dissolution
Requirements of fundamental corporate changes
- board action
- written notice to shareholders
- shareholder approval.
dissenting shareholders right of appraisal
right to force corp to buy stock at fmv
- exists in close corporatios
fundamental corp changes
includes amending articles
- requires a majority of shares (entitled to vote)
Mergers & consolodations
-merger - one corp absorbed into another
-consolidation - 2 corps become one new corp.
Conversion - corp converts into another business entity
dissolution - voluntary req. board action and shareholder approval.
Involuntary? req. ct. order
successor liability
corps creditors can sue survivor
winding up
written notice.
