Corporations Flashcards
what does a promotor do
enters ks securing capital to bring C into existence
what is promotor liable for
personally liable for k entered into pre incorporation
exception: novation or adoption
what do articles of incorporation say
must have name
may enumerate powers, limit duration, state purpose
when is C born
when papers are filed
what is a de facto C
good faith attempt to incorporate and ran business believing it was
what is corporation by estoppel
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
who is liable if par value stock is sold below minimum value
board
shareholder may be too if he knew of par value
requirements for shareholder meetings
must have annual meeting to elect board of directors
must have notice <60 but >10 days
what is the shareholder right to inspect records
restricted to normal biz hours
must give 5 days notice
need proper purpose
what shareholders are eligible to vote
those holding stock on record date
what is a direct shareholder action
shareholder sues for own benefit for a personal wrong
what is a derivative action
suing on behalf of C, usually against director or officer, recovery goes to C
who has standing to do derivative action
shareholder at time of bad act and time filed
what does the shareholder have to do before suing in derivitatve action
demand upon board
board has 90 days to act
futility exception
what will court consider when deciding if it should pierce the veil
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
what are shareholders fiduciary duties
none unless controlling shareholder
those have duty to not abuse power to disadvantage minority
notice rules for special board of director meeting
require notice at least two days before
director who didn’t get notice can object at meeting. otherwise, waived
what fiduciary duties do board of directors ahve
duty of care
duty of loyalty
what is the duty of care for director
act as ordinarily prudent person
investigate
can rely on reports/experts
remember - business judgement rule
what is the business judgement rule
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
how do you overcome business judgement rule presumption
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
what is the duty of loyalty
must act in best interest of C
(no self dealing or usurping)
what is self dealing
engaging in transaction with C that benefits director or close family
what is the safe harbor rule for getting out of self dealing
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
what is usurping corporate opportunity
taking opportunity that C would’ve been interested in without offering it to C first
what are the tests for usurping
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
when does C have to indemnify director
for expenses of successful defense
when can C not indemnify director
against liability due to receipt of improper personal benefit
when may C indemnify director
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
what duties to LLC members owe each other
duty of loyalty and duty of care
