Corporations

Question 1

what does a promotor do

Answer 1

enters ks securing capital to bring C into existence

Question 2

what is promotor liable for

Answer 2

personally liable for k entered into pre incorporation

exception: novation or adoption

Question 3

what do articles of incorporation say

Answer 3

must have name

may enumerate powers, limit duration, state purpose

Question 4

when is C born

Answer 4

when papers are filed

Question 5

what is a de facto C

Answer 5

good faith attempt to incorporate and ran business believing it was

Question 6

what is corporation by estoppel

Answer 6

3rd party entered into K with C as though it was a C, 3rd party then estopped from asserting that C wasn’t actually formed

Question 7

who is liable if par value stock is sold below minimum value

Answer 7

board

shareholder may be too if he knew of par value

Question 8

requirements for shareholder meetings

Answer 8

must have annual meeting to elect board of directors

must have notice <60 but >10 days

Question 9

what is the shareholder right to inspect records

Answer 9

restricted to normal biz hours
must give 5 days notice
need proper purpose

Question 10

what shareholders are eligible to vote

Answer 10

those holding stock on record date

Question 11

what is a direct shareholder action

Answer 11

shareholder sues for own benefit for a personal wrong

Question 12

what is a derivative action

Answer 12

suing on behalf of C, usually against director or officer, recovery goes to C

Question 13

who has standing to do derivative action

Answer 13

shareholder at time of bad act and time filed

Question 14

what does the shareholder have to do before suing in derivitatve action

Answer 14

demand upon board

board has 90 days to act

futility exception

Question 15

what will court consider when deciding if it should pierce the veil

Answer 15

undercapitalization of C at time of formation

disregard of C formalities

use of C assets as shareholders’ own

self dealing

siphoning C funds or stripping assets

Question 16

what are shareholders fiduciary duties

Answer 16

none unless controlling shareholder

those have duty to not abuse power to disadvantage minority

Question 17

notice rules for special board of director meeting

Answer 17

require notice at least two days before

director who didn’t get notice can object at meeting. otherwise, waived

Question 18

what fiduciary duties do board of directors ahve

Answer 18

duty of care

duty of loyalty

Question 19

what is the duty of care for director

Answer 19

act as ordinarily prudent person

investigate

can rely on reports/experts

remember - business judgement rule

Question 20

what is the business judgement rule

Answer 20

fiduciary duty of care

rebuttable presumption that director reasonably believed his actions were in the best interest of the C

protects director from liability because he acted in good faith

Question 21

how do you overcome business judgement rule presumption

Answer 21

show director
- did not act in good faith or
- director not informed to extent necessary or
- director did now show objectivity and had material interest in decision
- director failed to timely investigate after being alerted to significant matter or
- any other failure to act as reasonable director

Question 22

what is the duty of loyalty

Answer 22

must act in best interest of C

(no self dealing or usurping)

Question 23

what is self dealing

Answer 23

engaging in transaction with C that benefits director or close family

Question 24

what is the safe harbor rule for getting out of self dealing

Answer 24

transaction is ok if
1. director tells all material facts to board and receives approval by majority of disinterested board members
2. director tells all material facts to shareholders and receives approval by a majority of disinterested shareholders
3. transaction is fair to C

Question 25

what is usurping corporate opportunity

Answer 25

taking opportunity that C would’ve been interested in without offering it to C first

Question 26

what are the tests for usurping

Answer 26

interest or expectancy test: does C have an existing interest or expectancy arising from existing right in the opportunity

line of business test: are they in that line of business

Question 27

when does C have to indemnify director

Answer 27

for expenses of successful defense

Question 28

when can C not indemnify director

Answer 28

against liability due to receipt of improper personal benefit

Question 29

when may C indemnify director

Answer 29

unsuccessful defense if director acted in good faith and reasonably believed conduct was in C’s best interest and didn’t have reasonable cause to think conduct was unlawful

Question 30

what duties to LLC members owe each other

Answer 30

duty of loyalty and duty of care