Corporations Flashcards

1
Q

major players in a corporation

A

shareholders: own the stock in a corporation and are the residual owners of the firm
board of directors: responsible for high level decisions and for selecting the officers/employees
officers/employees: day to day decisions of the corp

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2
Q

promoter

A

engages in activities such as raising capital and forming contracts in order to bring a corporation into existence

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3
Q

the duties of a promoter

A

each promoter is understood as being in a joint venture with the other promoters and therefore they owe each other fiduciary duties
cannot act to receive personal gain
owes fiduciary duties to corp/investors: cant benefit personally at the expense of the corp

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4
Q

liability of the promoter

A

personally liable for pre-incorporation transactions
an express adoption or use of the contractual benefits by the corp is not enough to release promoter
can only be released through a subsequent novation
corporation may indemnify the promoter

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5
Q

promoter’s entitlement to reimbursement

A

will generally have a right to reimbursement if the promoter is held personally liable for a pre-incorporation agreement made in good faith
should be calculated based on the benefits received by the corp
promoter does not automatically receive reimbursement for corporate formation costs but corp can choose to repay them

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6
Q

Corporation’s liability for pre-incorporation transactions

A

not generally liable- promoter is not their agent because the corp does not yet exist
can become liable if they adopt the contract by accepting the benefits of the transaction or accepting liability

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7
Q

incorporator and their liability

A

the person who signs and files the articles of incorporation with the state
not liable for pre-incorporation contracts

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8
Q

what is the primary document for creating a corporation

A

articles of incorporation

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9
Q

what are the requirements for the articles of incorporation

A

1)must be filed with the state corporation commission
2) must include the name of the corp and other basic info
name must include special words- corp./co./company etc.
name cannot suggest its an llc
3)must include the place in Virginia where its main office is
4) must include the number of shares that the corporation is authorized to issue

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10
Q

what is something that can be included in the articles but doesnt have to be

A

a corporate purpose
commonly use broad statement, but narrower business purpose can be named

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11
Q

ultra vires

A

if the articles of incorporation state a narrow business purpose and the firm conducts activities outside this stated purpose

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12
Q

challenging an ultra vires activity, who can do it

A

a third party who contract with the corp cannot asset that a corp has acted outside of its purpose to escape liability
can only be challenged:
1) a shareholder can sue to enjoin the corp from conducting the act
2)the corp can take action against a director/officer who engages in the act
3) the SCC can initiate a proceeding against the corporation to enjoin the act

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13
Q

what are the corporate powers

A

to sue/be sued
to make and amend bylaws
to purchase/transfer property
to contract
to lend money
to elect/appoint officers
to establish pension plans
to insure
to pay compensation
other powers can be enumerated in the articles

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14
Q

additional requirements to establish a corporation

A

registered agent
the articles must be filed with the state
the legal existence begins upon filing or on a later date stated in filing that does not exceed 15 days

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15
Q

who can be a registered agent

A

a resident of VA who is either
1) a director/officer of the corp, or
2) a member of the VA bar

agent can be another corp/llc as long as:
1)corp is not its own agent, and
2)the other entity lists at least one natural person

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16
Q

what happens when all requirements of corp formation are met

A

a de jure corporation is formed

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17
Q

what is a major consequence of a de jure corporation being formed

A

the other parties associated with the corp will enjoy limited liability for activities undertaken by the corp

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18
Q

what impacts how you amend the articles

A

whether or not stock has been issued

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19
Q

how to amend the articles if no stock has been issue

A

BoD may amend, or
if they have not been selected, the promoter may amend

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20
Q

how to amend the articles if stock has been issued

A

three step process:
1)board must approve the amendment
2) board will submit the amendment to the shareholders for consideration
must be given:
i)a notice period between 25 and 60 days for the vote, and
ii) a copy of the amendment
3) shareholders must vote to approve
default: 2/3 of shareholder but articles can set any standard that is not less than a majority
if multiple classes of stock- each class impacted holds a separate vote
4)after proper approval is obtained, deliver to the SCC

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21
Q

Special situations with amending the articles

A

1)amendment imposes new liability on the shareholders:
i)each shareholder must sign a separate written consent to such liability, and
ii) the consent will only apply to liabilities that arise after the amendment becomes effective

2)minor amendments: board may approve the amendment even if there is outstanding stock

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22
Q

willful failure to incorporate

A

if someone purports to conduct business in VA as a corp without making any effort to comply with the requirements, that person will be guilty of a misdemeanor

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23
Q

de-facto corporation

A

good faith effort to incorporate fails
not followed in VA

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24
Q

corporation by estoppel

A

when a defectively formed corp holds itself out as a valid corp to a third party, cant avoid liability by raising lack of corporate status as defense
the outside party cannot normally recover from the personal assets of the business owner
exception: if third party knew they were not a corp

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25
additional acts following the filing of the articles
draft bylaws hold organizational meeting ratification
26
bylaws
acts as additional operating rules that corp may adopt to govern its affairs may contain any lawful provision related to the internal working of the corp cannot be inconsistent with articles- articles control may contain forum selection provision, but cant prohibit internal claim from being brought in VA or require arbitration
27
how to amend bylaws
depends on whether stock has been issued 1) no stock issued: board or promoter can amend 2) stock issued: either board or shareholders can amend articles can reserve power of amendment to shareholders alone
28
organizational meeting
meet to appoint officers, adopt bylaws, and approve pre-incorporation contracts if not already done, directors will be appointed
29
ratification
ratifying any corporate action purportedly taken that would have been within the power of the corp but is void or voidable due to a failure of authorization BoD must adopt a resolution approving the ratification
30
two types of securities
equity: convey ownership and control interests in the corporation share of stock debt: do not convey ownership and control interest a bond
31
types of equity securities
common stock: when the corp issues stock and does not set forth any special terms/conditions preferred stock: may have special rights or conditions, including: special voting rights right to redeem/incorporate the shares at the corporation's option the right to redeem the stock for property the right to redeem the stock according to a formula in the articles the right to allow for distribution in any manner the right to have a preference to get paid first over any other class for distribution
32
debt securities
create a contractual debtor-creditor relationship between the corporation and the outside lenders may be secured or unsecured may be barrer negotiable or registered may enjoy special features, such as the right to convert the debt into stock
33
how are shares of stock authorized
must be authorized by the BoD, unless articles say something else cannot issue more shares than are authorized in the articles if they do they are void and the purchaser can recover the money
34
how can a firm increase the number of authorized shares
by amending the articles
35
fractional shares
a scrip that represents a fractional share the holder may combine scrip into full shares and exchange these for a normal share of stock if the scrip specifically allows
36
rights of fractional shareholders
same rights as full shareholders BoD may place some conditions on the scrip including voiding scrip that is not exchanged for a full share by some date
37
share certificates and what happens if not used
shares can be evidenced by a certificate but this is not required if used, they should state: 1)the name of the company 2)the fact that it is incorporated in VA 3)the name of the shareholder, and 4)the humber and class of shares if shares are not certificated, corp must deliver a written statement with this same info to shareholders within a reasonable time
38
consideration for stock
shares can be issued for any type of benefit to the corporation ex.: cash, property, services, promissory notes amount will be determined for the corp by the BoD
39
Par value stock
may be issued by the corporation the value of the stock will be specified in the articles and corp must receive at least this amount before stock is issued if property is contributed, director must evaluate whether the value of the property exceeds the par value: evaluation is binding unless there is a knowing and intentional overvaluation of the property if no par value can be sold at any price specified by the directors- can be diluted
40
stock subscriptions
after the articles are filed but before the directors are elected, a person may subscribe to purchase stock from the corp when it comes alive irrevocable for 6 month, unless all parties agree to revoke can explicitly specify if longer/shorter period
41
Preemptive rights
corp does not automatically have preemptive right but can provide for them in the articles allow shareholders to maintain a proportional share of ownership in the corp
42
when is federal registration required
only required for public offerings exception: sale of stock to just a few investors, especially sophisticated investors, may not trigger registration requirements
43
what does federal registration require
a detailed registration statement with the SEC and the delivery of a prospectus
44
what happens if a corporation fails to comply with the registration requirement
a purchaser of the security: 1)may sue to rescind the transaction, and 2) may recover compensatory damages caused by an error or omission in the registration statement the investor must not have purchased the stock with knowledge of the error
45
who may be liable for failing to comply with registration requirement
the issuing corp any signer of the registration statement a director of the issuing corp an expert named as having prepared or certified the statement the underwriter of the issue
46
distribution
the transfer of cash or property from the corp to one or more of the shareholders also known as a dividend
47
who authorizes a distribution
the board of directors unless articles say something else
48
stock split
corporation can issue new shares as a distribution if permitted in the articles also known as a share dividend
49
can corp issue a different class of shares as a distribution
maybe, as long as at least one of the following is true 1)the articles of incorporation permit it 2)the majority of votes entitled to be cast by the class to be issued permit it 3) there is no outstanding stock of the class to be issued
50
insolvency and distribution
a corporation cannot make a distribution if it is insolvent
51
what make a corporation insolvent
1)payment of the distribution would prohibit the corp from paying its debts as they become due in the normal course of business, or 2)the liabilities of the corp exceed its assets
52
liability for unlawful distribution
a director who votes for/agrees to an unlawful distribution in violation of her duty to care or loyalty will face personal liability to the corp and its creditors for the excess amount of the distribution director is entitled to contribution from other liable directors director may recoup payments from any shareholder who accepts the unlawful distribution on a pro rata basis
53
record date
set by the directors and everyone owning the shares on that date will receive the distribution
54
are restriction on stock transfers permitted
yes common in smaller corps
55
where can transfer on stock restrictions be found
the articles of incorporation the bylaws, or an agreement among shareholders or between shareholders and the corp
56
validity of a transfer restriction on stock
will be valid as long as 1) the restriction has a lawful purpose, and 2) the restriction does not create an undue restraint on alienation
57
determining reasonableness of a stock transfer restriction
is a question of fact but an absolute restriction on resale is generally considered unreasonable and void
58
restrictions against third party purchasers of stock
are enforceable so long as 1)the restriction is noted on the stock certificate, or 2)the purchaser has actual knowledge of the restriction
59
two types of federal causes of action
10(b)-5 16(b)
60
Rule 10(b-5
governs the fraudulent purchase or sale of any stock/other security enforced by SEC
61
10(b)-5 requirements to bring private COA
a private investor can bring a private COA by establishing: 1)plaintiff must have bought or sold a security *D doesnt have to be a participant in the transaction forced sale doctrine: forced exchange of shares in a merger will count as a sale 2)must involve interstate commerce *look for phone/mail, not personal 3)D must have engaged in fraudulent or deceptive conduct primary forms: i) making an untrue statement of material facts, or ii) failing to state a material fact that is necessary to prevent statements already made from being misleading bespeaks caution doctrine: opinion accompanied by adequate language not misleading 4)conduct must relate to basic, material info: something a reasonable investor would find important when deciding 5)D must act with intent or recklessness (scienter) 6) P must have relied on Ds conduct fraud on the market: misleading public statement is presumed to satisfy the reliance element reliance must also be justifiable 7)P must have suffered damages/harm from conduct i) out of pocket losses: time of fraud vs. price paid ii) rescission: permitted if D was involved iii)punitive: not allowed BIDBIRD
62
Section 16(b)
governs insider short swing profits restricts insiders from rapid trading profits related to firm's stock; reason for trading doesnt matter during any six month period, an insider who both buys and sells his corps stock is liable for any profits required to report any change in stock ownership to the SEC
63
who is protected under Section 16(b)
1)corporations with securities that trade on a national exchange 2)corps with more than 10 mil in assets and more than 500 shareholders
64
who are governed by section 16(b)
corporate insiders shareholders holding more than 10% of any class of stock
65
insider trading
abstain or disclose rule: a person who merely possesses material inside info wont be liable under 10b-5 unless also trades a security based on this knowledge presumed if possessed the info at the time of the trade exception: trades made according to a pre-existing written plan
66
who may be liable for failing to disclose inside info
1)insiders: directors, officer, employees 2)constructive insiders: persons with access to inside info based on relationship with corp 3)tippees: receives info from an insider, must: i) receive a personal benefit from the tip, and ii) know that the info was provided by a tipper in violation of duty to corp 4)misappropriators: person who wrongfully uses confidential info of one party in order to trade stock in a different corp
67
state cause of action for trading stock
tort of fraud
68
tender offer rules with stock
an offer to shareholders of a publicly traded corp to purchase their shares at a fixed price: hostile takeover a person who acquires more than 5% of any class of stock needs to file a statement with SEC revealing: 1)percentage ownership 2) source of funding, and 3) purpose in acquiring stock
69
two types of shareholder meetings
annual and special
70
annual shareholder meetings
time and place specified in the bylaws main purpose: elect directors but any proper business decision may be addressed
71
special shareholder meetings
held to address a purpose specified in the notice of the meeting no other corporate business can be conducted called by pres or BoD, but articles may allow someone else special rule: if a corp is nonpublic and has 35 or fewer shareholder, may call a special meeting by a group of shareholders owning at least 20% of entitled shares
72
notice for shareholder meetings and when is it not required and how can it be waived
written notice must given that says time, date, place of the meeting must be given between 10 and 60 days from the meeting date meetings involving a fundamental corporate change: must be given between 25 and 60 days special meetings: must include purpose may be delivered by any method used in commercial practices not required if: 1)notice for 2 consecutive annual meetings were returned undeliverable, or 2) two consecutive distribution within 12 month period were returned undeliverable waived by writing or attending the meeting
73
where must shareholder meetings take place
can be held anywhere but special meetings must be held at principal office unless another place is mentioned in the notice
74
what to do if a corp is not holding timely shareholder meetings
shareholder can petition the circuit court for an order compelling for: annual meetings: if more than 15 months has lapsed special meetings: corp has not given notice of the meeting within 30 days of the receipt of the requiste number of demands for special meeting, or meeting not held in accordance
75
shareholder voting eligibility
onweship of stock entitles a shareholder to vote- one share, one vote co-owners: either may vote executors or guardian can vote on proof of authority treasury stock cannot be voted determining ability to vote is based on record date which cannot be more than 70 days before the vote
76
what decisions require a shareholder vote
primary issue: electing BoD also fundamental corporate changes such as an amendment to the articles or a merger
77
Quorum of shareholder
established by a majority of the votes entitled to be cast may be adjusted by articles but cant be lower than 1/3 can be remote if: 1) firm can verify that the participant is a shareholder, and 2) communication equipment can provide a reasonable opportunity for participation
78
shareholder vote approval requirements
usually requires a majority of votes cast at a vote with a quorum present
79
how to vote for directors
Normal method: a plurality vote: nominee with the most votes wins Cumulative voting: may be established by the corp each shareholder multiplies number of shares by number of directors to be elected
80
proxy voting
can be done must be executed in writing and delivered to the corp/its agent valid for 11 months, unless otherwise stated can be revoked, unless irrevocable and couple with interest proxy remains valid after death of SH unless corp has notice before proxy acts
81
two types of shareholder agreements
voting trust pooling agreement used to govern voting rights and other managerial interests
82
voting trust
agreement where all the participating shareholders transfer their shares to a trustee who then votes the shares and distributes distributions trust: legal owner of shares shareholders: equitable owners of the shares if established before July 1, 2015 limited to 10 years, but can be renewed
83
pooling agreement
agreement among shareholders to vote all shares together as the majority of those in the agreement dictate does not separate voting power and owner benefits
84
shareholder management agreements
allows shareholders to alter the way in which a corp is managed, even if inconsistent with normal statutory governance provisions can adjust numerous matters: 1)elimination of BoD 2) restriction on the discretion/powers of the board 3)authorization or making of distributions 4) determination of who is a director/officer 5)exercise/division of voting power 6)transfer/use of property or services 7)transfers to one+ shareholder of all or part of the authority to exercise the corporate powers 8)the dissolution of corp at request of 1+ SH 9)exercise of the corporate powers and the affairs of the corp
85
where must a shareholder management agreement be set forth and how may it be amended/terminated
1) in the articles/bylaws and approved by all persons who are shareholders at time of the agreement, or 2) in a written agreement signed by all persons who are shareholders at the time of the agreement and that is made known to the corp only by all persons who are shareholders
86
limits to a shareholder management agreement
1) must be noted conspicuously on each certificate, or if no certificate sent to the shareholder 2) ceases to be effective when corp becomes public 3) directors are relieved of liability for acts/omissions to extent of limits set by the agreement, and person vested with the power is subject to the liability 4) a management agreement is not a ground for imposing personal liability on shareholders for corporate acts or debts
87
right to inspect corporate records
shareholders have the right to do this applies to a record shareholder, beneficial shareholder, or an agent/attorney appoint by shareholder independent of discovery for litigation differentiate between without purpose or with proper purpose
88
inspecting corporate records without purpose
no restriction during regular business hours at principal office: 1)current articles/bylaws 2)most recent annual report 3)names and address of current directors/officers 4)shareholder meeting minutes and all written communications with shareholders within last 3 years 5) any board resolutions creating one+ classes of shares
89
inspecting corporate records with proper purpose
types of records: 1)other materials from board meetings 2) accounting reports/related work papers used in prep of financial statements 3)record of corps current shareholders four key requirements: 1)shareholder demanding info must have held stock for at least 6 month or hold at least 5% of shares 2) demand must be in pursuant of proper purpose and made in good faith: relates to shareholder's interest in the corp improper purpose: harassment, gathering secrets 3)shareholder's demand must describe with reasonable particularity the purpose and the records desired to be inspected/copied 4)requested records must be directly connect with the inspection purposes corp may enforce reasonable restriction on confidentiality or use of the records
90
notice required for inspecting corporate records
must be made at least 10 business days before the inspection and delivered to corp's secretary
91
when a corp improperly denies inspection rights
shareholder may obtain: 1)expedited court proceeding to secure access, and 2)seek reimbursement for litigation costs
92
financial statements
shareholder may also be able to obtain financial statements as follows: 1)all corps are required to provide the most recently published financial statement to a shareholder upon request 2)public firms that have issued securities typically required to supply shareholders with an audited financial statement under fed securities law
93
Types of actions brought by a shareholder
direct shareholder actions derivative actions
94
direct shareholder actions
two basic circumstances: 1)an action to recover for harm linked to their rights as a shareholder 2)an action that does not arise based on Ps status as a shareholder recovery will go to the shareholder
95
derivative actions
a shareholder seeks to compel the corp to file a lawsuit to recover for harm suffered by the corp itself things: standing demand dismissal consequences
96
standing for a derivative action
claimant must: 1) be a shareholder at the time of the act/omission 2)become a shareholder through transfer from someone who was a shareholder at time of act 3)become shareholder before public disclosure and without public knowledge of the act must also be able to fairly represent the interests of the corp
97
demand for a derivative action
P must make a written demand upon board to take action after demand is made, shareholder can commence: 1) if no response for 90 days 2)if waiting for response would lead to irreparable harm 3)if demand is rejected, by alleging that the corps review and evaluation procedures were not complied with
98
dismissal of a derivative action
court may dismiss if disinterest directors take the following steps: 1) conduct an adequately informed review and evaluation of the allegations 2)determine in good faith that continuing the litigation is not in the best interest of the corp 3)submit a short statement of reasons for determination determination should be made by either: 1)majority vote of disinterested directors, or 2) majority vote of a special committee consisting of 2+ disinterested directors appointed by majority of disinterested directors
99
consequences of a derivative action
any settlement must be approved by the court corp gets the recover shareholder can recover litigation expenses if lawsuit results in a substantial benefit to the corp shareholder may need to pay Ds litigation expenses if no reasonable cause/arbitrary purpose for the litigation
100
Piercing the corporate veil
challenging the limited liability of the shareholders if successful, the existences of the corp will be ignored and the shareholders will be held personally liable
101
factors to look at for piercing the corporate veil
was there respect for the corporate formalities? 1)lack of required meetings 2)lack of minutes 3)inappropriate decision making 4) commingling of personal/corporate funds was the corp used to promote fraud/injustice: 1)inadequate capitalization 2)lies 3)shareholders abusing limited liability protection
102
the power of the board of directors
has ultimate authority for exercising corporate power manages and directs decisions of the corp can appoint and authorize officers and employees to carry out day to day business
103
board composition and selection
number established in the articles or bylaws- can be increased or decreased dont need specific qualities unless otherwise specified selected by a shareholder vote at the annual meeting
104
director length of term
typically one year unless elections for board members are staggered, then it is 3 years a directors whose term expires can continue to serve until: 1)successor is elected and qualified, or 2)number of directors is decreased directors may resign at any time by delivering written notice to board, chair, secretary vacancies will be filled by shareholder vote, director vote, or vote of majority of remaining shareholders
105
who can remove directors from the board
shareholders court by court order
106
removal of a director by shareholders
must be at a meeting called for that purpose- notice director may also be removed by written shareholder consent if permitted by articles dont need cause to remove unless articles director elected by cumulative voting can be removed unless votes sufficient to elect director are cast against removal decision
107
removal of director by court order
permitted if director: 1)committed fraud against corp/shareholders 2)grossly abused the position of director, or 3) intentionally harmed the corp court must deem in the best interest of the corp
108
meeting requirements for directors
may hold regular or special meetings notice only required for special meetings- verbal notice is ok if articles/bylaws allow waive notice explicitly or by attending board may take action without meeting if each director signs a written consent unless articles/bylaws say otherwise
109
voting requirements
requires a quorum of directors present at the meeting: majority of all directors, unless otherwise stated- cant be less than 1/3 based on number of directors mandated- vacancies dont reduce number need for quorum
110
how can a director avoid liability for action taken by board at meeting
must dissent by: 1)promptly objecting to the holding of the meeting/transaction at start of meeting 2)vote against the action/abstain from vote and have dissent entered into minutes, or 3)delivering written notice of dissent/abstention to the presiding officer of the meeting before its adjournment or to secretary immediately after adjournment
111
director voting agreements
generally unenforceable
112
impact of unanimous consent of shareholders
Whenever the board of directors must take any action or recommend or approve any proposed corporate act, this action, recommendation, or approval is not required if the proposed action or corporate act is adopted by the unanimous consent of shareholders.
113
director committees and what they cant do
a majority of the directors must vote for: 1)creation of the committee, and 2) the appointment of a director to the committee non-board members can be appointed to a committee but cant vote on matters when performing a function of the board what they cant do: 1)authorize or approve distributions (except within limits set by the full board) 2) approve or propose actions that require shareholder approval 3) approve a plan of merger 4)fill vacancies on board/committees 5)amend the articles 6) adopt, amend, or repeal bylaws 7)authorize or approve the issuance/sale/contract for sale of shares
114
director committees and publicly held corps
typically will have the following committees: 1)audit committee 2)compensation committee 3) nominating committee sarbanes-oxley act: corp with stock listed on national exchange must have an audit committee member must be independent directors
114
main duties of a director
duty of loyalty duty of care required to act in good faith in discharging these duties
114
business judgment rule
a director is entitled to a rebuttable presumption which protects decisions made with good faith business judgment of the best interests of the corp doesnt matter if it ends up being a bad decision
115
duty of care
must not behave in a grossly negligent or reckless manner in connection with business decisions director is entitled to rely on opinions of officers, experts, committees, if believed to be reliable and competent director will not be liable if absent from meeting when decision made or dissent from the decision
116
duty of loyalty
requires a director to act un an unselfish manner by not placing his interests ahead of the corp types: self-dealing competition waste
117
self-dealing
directors cannot engage in a conflict of interest transaction with own corporation: must not profit at the firms own expense safe harbor exceptions: 1)committee of board approves the transaction with knowledge of all material facts, including personal interest 2)shareholders approve the transaction with knowledge of all material facts 3)transaction is fair to the corp: i)would the transaction have been approved by a disinterested BoD ii)would the same result have been accomplished between two parties of equal bargaining power who were not under duress
118
competition/usurpation
a director may not engage in a business venture that competes with the corp corp may limit/eliminate this duty in its articles director may engage in unrelated business ventures
119
Waste
a director may not waste corporate assets by using resources in a way that is not in the best interests of the corp
120
indemnification
director seeking from the corp for any expenses and any judgment if she is involved in a legal action as a consequence of role as director types: mandatory prohibited permissive
121
mandatory indemnification
a corp is required to indemnify a director for expenses incurred in a wholly successful defense of a proceeding against the director may seek court order compelling
122
prohibited indemnification
corp may not indemnify a director against liability stemming from: 1)willful misconduct or a knowing violation of criminal law, or 2)receiving improper personal benefits
123
permissive indemnification types
general indemnification specific proceeding indemnification
124
general indemnification
permitted if auhtorized by: 1)articles 2)bylaw 3)shareholder resolution firm may also provide advancement of expenses
125
specific proceeding indemnification
may indemnify a director if the director: 1)acted in good faith 2)held a reasonable belief that conduct was i)in best interest of the corp, or ii)not opposed to the best interest of the corp 3)in a criminal proceeding, did not have reasonable cause to believe that conduct was unlawful satisfaction of these requirements must be determined by either: 1)a majority vote of disinterested directors 2) special legal counsel chosen by disinterested directors, or 3)the shareholders
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expense advancement for directors
A corporation may advance funds if the director gives the corporation a signed written undertaking to repay funds advanced if the director is not entitled to indemnification.  Must be an unlimited general obligation, but need not be secured  Need not consider the financial ability of the director to make repayment must be authorized by: 1) a majority of disinterest directors if at least two exists, or 2) the shareholders
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court ordered indemnification
permitted when the court determines that it is fair and reasonable can apply regardless of whether corp otherwise provides/refused to provide indemnification
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liability insurance
corp may also purchase liability insurance to indemnify directors for actions arising from services as director
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caps on director liability
statutory cap is the greater of: 1)100,000 or 2)the cash compensation received by director during last 12 month period corp can have their own cap but it cannot be higher
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director inspection rights
directors have inspection rights for any purpose related to their duties as a director can seek court order of corporation refuses access
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VAs requirements regarding officers
does not require a corp to have specific officers designation of officers and duties are left to bylaws/BoD
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key officers
president secretary treasurer
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authority of officers
they are agents of the corp and may bind the corp in contract law so long as they have authority: express implied apparent
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selection of officers
selected by the BoD
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Personal liability of officers
do not normally incur personal liability for the performance of duties related to the corp, but may personally be liable for acts to guarantee a contract or commit a tor in own capacity
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duty of officers
same fiduciary duties of care and loyalty duties will be defined in bylaws or set by the board entitled to rely on: 1)performance of properly delegated responsibilities by corporate employees whom officer believes in good faith to be reliable/competent 2)information, opinion, statements presented by employees other experts in good faith
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federal requirement for officers
Sarbanes Oxley requires the CEO and CFO of public companies to certify the accuracy of financial statements with the SEC, and forfeit incentive based pay if the financial reports need to be restated
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indemnification of officers
same as directors
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resignation/removal of officers
may resign at any time by delivering written notice: 1)may provide for delayed effectiveness 2)resignation does not affect contract rights officer may be removed at any time with or without cause by: 1)board of directors 2)appoint officer, or 3)any other officer authorized contract rights can still be implicated
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Statutory merger
the combination of two+ corps where only one survives if a new surviving form is created called a consolidation
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procedure for a statutory merger
1)BoD for each corp must adopt a resolution authorizing the merger 2)notice must be given to shareholders between 25 and 60 days before meeting must include a summary of the plan 3)shareholder of each corp must approve the merger: 2/3 unless otherwise stated 4)required documents are filed with the commission
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shareholder approval of merger
2/3 must approve taken for each separate voting group if exists necessary vote may be increased or decreased but not below a majority
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what happens if a small corp is being merged into a larger one
shareholder vote not needed by surviving shareholders if: 1)number and rights of their shares are unchanged 2)number of share entitled to vote unconditionally in the election of directors is not increased by more than 20% and 3)the articles of incorporation are unchanged
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short form merger
applies between a parent and subsidiary when the parent owns at least 90% of the voting power of the subsidiary permitted without approval by BoD/shareholders of subsidiary or shareholder of parent same rules apply for a merger between two subsidiaries if parent owns 90% of each
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abandonment of merger
unless plan prohibits abandonment, may be abandoned at any time prior to filing the article of merger can either happen in accordance with: 1)abandonment procedures set forth in the plan of merger, or 2)if the plan sets forth no procedure, manner determined by BoD abandonment may constitute breach of contract
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effects of merger
all rights, assets, and liabilities automatically vest in the surviving company merger is not treated as a dissolution of the non-surviving firm any change in ownership is not treated as an assignment of rights, assets, liabilities
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merger with foreign entities
one+ domestic corps may merge with 1+ foreign
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stock acquisition
a corp acquiring stock of another corp and thereby acquiring control of that firm without conducting a statutory merger formats: 1)stock for stock exchange 2) stock purchase when purchasing corp buy stock on the public marker or through a tender offer process
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asset purchase
a firm can purchase all, or substantially all of another corps assets if for a relatively small sale- may act without shareholder approval if transaction includes all or substantiall all, selling shareholder approval will be required same rules as merger
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when is a corp deemed to have kept significant continuing business activity
if it keeps business activity that represented: at least 20% of total assets at the end of the most recently completed year, and at least 20% of either income or revenue from continuing operations
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liability when company buys all another firms assets
not always but look out for: 1)purchasing corp agrees to assume the liabilities 2)circumstances surrounding the transaction warrant a finding of a de facto merger or consolidation 3) transaction is fraud in fact 4) purchasing corp is merely a continuation of the selling corp
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conversion into a different entity
A Virginia corporation may convert into a domestic limited liability company (LLC) and a domestic LLC may convert into a domestic corporation. * Effective July 1, 2021: A Virginia corporation may convert into a domestic or foreign eligible entity pursuant to a plan of conversion. A domestic eligible entity may also convert to a domestic corporation. approval procedures are same as merger
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change of jurisdiction
allowed if other jurisdiction allows it same requirements as merger
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appraisal rights
a shareholder who objects to a merger/acquisition may be entitled to file to force the corp to buy her shares at a judicially determined fair price
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who is entitled to appraisal rights
any shareholder entitled to vote on a fundamental change exceptions: 1)market out exception: claims are not permitted if shareholder can sell his stock in a liquid and reliable market 2)for asset transfers, a shareholder is not entitled to appraisal rights unless the transfer is made to an interest person who within the past year: i)held at least 20% of the voting power ii)could elect more than 25% of the directors, or iii) was a senior executive officer or director who receives a benefit not generally available to shareholders
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notice for appraisal
corp must give advance notice to shareholders that will qualify
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how to perfect appraisal rights
not vote in favor of the proposed corporate action, and make a written demand for payment after the action is approved by other shareholders
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remedies under appraisal rights
appraisal is an exclusive remedy meaning that the dissenting shareholder cannot challenge the corporate action for any reason except for fraud or illegality
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how to do voluntary dissolution
if firm has not yet issued stock: may dissolve by signing a resolution of dissolution approved by a majority of the incorporators or initial directors if has issued stock either: 1)having the board adopt a proposal to dissolve and obtaining shareholder approval, or 2)obtaining a 100% vote to dissolve by the outstanding shares entitled to vote
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shareholder approval for voluntary dissolution
2/3 approval from each group can be more or less but must at least be a majority
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corporation post dissolution
it continues to exist for a short time for the limited purpose of winding up and liquidating its business corp will: 1)collect its assets 2)dispose of properties that will not be distributed to shareholders 3)discharge liabilities 4)distribute any remaining assets to shareholders according to their interest 5)conduct any other necessary act to wind up and liquidate
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how can you revoke a dissolution
by submitting articles of revocation of dissolution with the commission
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involuntary dissolution and who can do it
a legal action to involuntarily dissolve a corp SCC shareholder creditor
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involuntary dissolution by SCC
if the corp has: 1)abused its authority 2) failed to keep a resident agent 3) failed to file a required document, or 4) violated a fed employment law
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involuntary dissolution by shareholder
if: 1)shareholders are deadlocked 2)directors are deadlocked and shareholders are unable to break it and irreparable injury to the corp is threatened 3)the acts of the directors are oppressive, illegal, or fraudulent, or 4) the corporate assets are being wasted
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involuntary dissolution by creditor
when the claim has been reduced to an unsatisfied judgment and the corp is bankrupt
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creditor rights post dissolution
board must pay creditors before making any shareholder distributions
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how can a corp dispose itself of know creditors
by providing a notice of dissolution: 1)stating whether the claim is admitted or non admitted 2)providing a mailing address where claim may be sent 3)setting a deadline to confirm the claim 4) stating that any claim will be barred if confirmation not received by deadline, or if not admitted, not commenced by deadline
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rights of unknown creditors post dissolution
may bring an action against a shareholder of the dissolved corp creditor is entitled to the lower of the shareholders pro rata share or the amount received in liquidation
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how long does a creditor have to bring a claim
SOL or 3 years after date of notice was delivered
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close corporation
corp with only a few shareholder allows a relaxed form of governance where shareholders often serve as both directors and officers
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professional corporation
corp with a purpose that is limited by statute to rendering professional services shareholder must be a member of applicable profession shield an employee from liability arising from malpractice by other professionals in the corp but not own
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foreign corp
authorized by law to issue shares under non VA law generally may not transact business in VA unless it obtains a certificate of authority VA distinguishes between incidental corporate activity from the transaction of business corp can be sued or sue in VA without certificate
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S corp
avoids double taxation by passing income and expenses through to the shareholders
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Benefit Corp
a firm designed to promote one or more specific public benefits corporate decisions dont have to maximize shareholder profits must describe its public benefit efforts in its annual report
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Nonstock corp
has members rather than shareholder but law parallels that of a stock corp members are not entitled to distributions but have all other rights /restrictions of shareholders
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Limited Liability company
a legally recognized business entity that combines pass through tax treatment with the limited liability of a corp
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creation of an LLC
created by at least one person filing the article of organization with SCC comes into existence at the time the commission issues a certificate of organization
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purposes and powers of an LLC
may engage in any lawful business or purpose but may set out a more limited purpose in article following powers: to sue/be sued purchase, transfer and encumber property contract/lend money elect/appoint officers, managers, agents enter partnership agreements indemnify exercise any powers necessary
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Key documents LLC
articles of organization must include: name of LLC- special word its registered agents and office business addresss operating agreement: like bylaws must be agreed to by all members
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two main players in an LLC
members and managers
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how does a person become a member of an LLC
by consent of a majority of managers in a manager managed or members in a member managed, ort by assignment/merger
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LLC and agency
in a member managed, K formed for the LLC by a member with authority will be binding in manager managed, acts of members will not be binding
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LLC and voting
members will vote in proportion to their contribution to the LLC unless stated otherwise need a majority vote
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LLC managers
a person appointed by the members to manage the LLC typically elected by the members removal: either by articles/operating or with or without cause by majority vote of the members
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LLC liability
in general, not personally liable to 3rd parties for obligation of the llc exceptions 1) a member or manager liability will not be limited if so provided in the articles/operating 2)a member/manager liability will not be limited if she engages in willful misconduct or a knowing violation of crim law 3)if a member renders professional services in an LLC, the member may be personally liable for torts committed while rendering services
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allocations of profits and distributions in an LLC
based on each members contribution to the LLC
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dissolving an LLC
will dissolve upon the happening of an event stated in articles/operating or upon unanimous written consent of the members, or a judicial decree of dissolution or cancellation
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LLC derivative action
a member may bring a derivative action against the LLC in the same manner that a shareholder may bring a derivative action against a corp