Corporations Flashcards

Question

Duty of care

Answer 1

burden on challenger to prove breach nonfeasance - director does nothing - lazy director - liable only if breach causes a loss to the corporation - difficult to show that nonaction caused a loss misfeasance - board makes a decision that hurts the business - causation is clear because participated in decision Business judgment rule - not liable for decisions that in hindsight were poor - presumption that when the board took an act it did appropriate homework - will not second guess decisions made in good faith, informed, and rational basis can rely on reports, opinions, statements

Answer 2

conflicts of interest - Business judgment rule does not apply burden on defendant to prove no breach cannot compete transaction between corporation and - one of the directors - director's close relative - a business of the director not a breach if - approved by majority of disinterested directors or majority of disinterested shares after disclosure of all material facts - it was fair to the corporation even if approved - can still be breach if waste of corporate assets - may also need to show fairness

Answer 3

adequacy of consideration corp need to enter transaction financial position of the corp available alternatives

Answer 4

Directors can set must be reasonable and in good faith otherwise breach of loyalty

Answer 5

breach of loyalty must first give corporation an opportunity to act corp must have an interest or expectancy or in business line lack of financial ability not a defense remedies - constructive trust - compel transfer at price she paid - profit if sold

Answer 6

material corporate info to other members of the board

Answer 7

Corp can make a loan to director if reasonable expected to benefit the corp

Answer 8

Director presumed to concur with board action unless her dissent or abstention is noted in writing on the corp records - the minutes - delivered to presiding officer at the meeting - written dissent immediately after meeting cannot dissent if voted for resolution in meeting not liable if absent from the board meeting

Answer 9

Agents of the corporation trad - needed president, secretary, treasurer now - do not need any particular - one person can serve more than one office simultaneously duties - same care and loyalty as directors

Answer 10

By board who also sets compensation - with or without cause -if breach of contract- right to damages shareholders only hire and fire directors, not officers

Answer 11

No indemnification - held liable to the corp - received improper benefits Mandatory unless limited by articles - successful in defending a proceeding on the merits permissive - and catch all - unsuccessfully defending and director acted in good faith and believed actions were in the best interest of the corp

Answer 12

Disinterested majority of board if no disinterested quorum, majority of a disinterested committee or independent legal counsel or shareholders

Answer 13

can not eliminate duty of loyalty, can for duty of care

Answer 14

shareholders run close corp - can be managers or can elect board few shareholders and stock is not publicly traded

Answer 15

Close corps - set up alternative management to set up - in articles and approved by all shareholders - unanimous written shareholder agreement whoever is in management owes a fiduciariy duty If no shareholder management agreement set up - no power in management

Answer 16

Fiduciary duty on shareholders owed to other shareholders controlling shareholders to minority shareholders - cannot use power to benefit at expense of minority - disclose material info to minority oppression of minority shareholders - can sue the controlling shareholders who oppress them for breach of duty

Answer 17

Licensed professionals can incorporated - must have PC of PA in name Articles must state purpose is to practice particular profession Directors, officers, shareholders must be licensed professionals employees can be non-professionals

Answer 18

only in close corporations - shareholder might become personally liable - to void fraud or unfairness Requirements - shareholders must have abused the privilege of incorporating - fairness must require holding them liable Elements justifying - alter ego - shareholders ignore corporate formalities and treat the corp as a mere instrumentality/alter ego of the shareholders - treating corp assets as own, commingling money - undercapitalization - at time of formation, not enough unencumbered capital to reasonably cover prospective liabilities - Fraud, avoidance of existing obligations, evasion of statutory provisions

Answer 19

only the shareholders who were active in the operation easier in a tort claim than a contract claim

Answer 20

shareholder suing to enforce the corporations claim, not own personal claim money from judgment goes to the corporation

Answer 21

Shareholder at the time the claim arose or must have become a shareholder through transfer by operation of law (inheritance or divorce) from someone who did own stock at the time the claim arose

Answer 22

Shareholder must made a written demand on corporation to take action, wait 90 days to sue - unless demand would be futile join corporation as defendant dismissal and settlement requires court approval - reasonable independent investigation found not in the best interest of the corp Burden of proof - burden on shareholder to prove decision not made in good faith - burden on directors if personal interest in controversy that it was made in good faith

Answer 23

Authorized - number of shares corporation may issue - set in articles Issued - number corp has sold Outstanding - shares issued but not reacquired

Answer 24

Shareholders of record on the record date may vote at the meeting record date fixed by BoD - cannot be more than 70 days before meeting exceptions - treasury stock - reacquire stock before record date - no one votes on the stock - death of shareholder after record date - executor votes

Answer 25

Requirements - writing - signed by record shareholders - directed to secretary of corp - authorizing another to vote the shares proxy only good for 11 months unless it says otherwise revocation - revoke by attending meeting, in writing to corp secretary, or by subsequent appointment of another proxy - irrevocable if proxy coupled with an interest other than voting or given security and states that it is irrevocable

Answer 26

Voting trust Voting agreement

Answer 27

Written agreement of shareholders under which all of the shares owned by the parties to the agreement are transferred to a trustee who votes the shares usually only valid for 10 years requirements - written trust agreement - copy of the agreement given to corp - legal title to shares transferred to voting trustee - original shareholders receive trust certificates and retain all shareholder rights except voting

Answer 28

Writing and signed - no time limit - does not need to be filed with corp specifically enforceable

Answer 29

Can take action in meeting or unanimous written consent annual meeting - if not held within 6 months of the end of the fiscal year or 15 months after last annual, whichever is earlier - can petition court to order one - usually to elect directors special meeting - may be called by BoD, president, holders of atleast 10% of outstanding shares, or anyone authorized in articles or bylaws Notice - in writing 10-60 days before meeting - can be waived - date, time, place - if special meeting - purpose because cannot do anything else but the purpose at the meeting - if no notice - actions may be void unless waiver - express or implied

Answer 30

What do they vote - elect directors - plurality voite - remove directors - majority entitled to vote but increasingly majority that actually voted - fundamental corporate changes - majority entitled to vote but increasingly majority that actually voted - other things board asks them to vote on - majority that actually voted (follow traditional voting numbers) Quorum - based on number of shares not shareholders - majority of outstanding shares entitled to vote - not lost if people leave meeting

Answer 31

only if in the articles - dont vote for each seat individually like straight voting - one large election and top to finishers are elected - multiply number of shares times number of directors to be elected to determine voting power and allocate shares to candidates

Answer 32

Can restrict transfers if not an undue restrain on alienation - rights of first refusal are valid Cannot enforce restrictions on a third party purchaser if no notice of restriction

Answer 33

Noncontroversial things - unqualified rights - written demand at least 5 days in advance Controversial things - qualified right - must state proper purpose reasonably related to person's interest as a shareholder - 5 day written notice

Answer 34

No right - solely within directors discretion can compel if there is an abuse of discretion record shareholder as of the record date will receive the dividend

Answer 35

Cannot made distribution if insolvent or the distribution will make them insolvent - corp would not be able to pay its debt as it becomes due - the corp's total assets would be less than the total liabilities plus the amount need if the corp were to dissolve at the time of distribution to satisfy preferential rights

Answer 36

Directors jointly and severally liable unless good faith shareholder if they knew the distribution was improper when receiving it

Answer 37

Amending articles merging or consolidating transferring substantially all assets converting to another form of business dissolving - board action adopting resolution - board submits proposal to shareholders with written notice - shareholder approval

Answer 38

Dissenting shareholder to fundamental change can force corp to buy their stock at fair value - only if stock not publicly traded or have less than 2000 shareholders with stock valued less than 20 million merging or consolidating transferring substantially all assets converting to another form of business not amending or dissolving

Answer 39

Merger - two corps combine and one corp survives consolidation - two corp combine and form a new entity need shareholder approval from both corps - exception to surviving corp in merger if no significant change (articles dont change, shares dont change, voting power does not change much) Surviving corp has all liabilities of constituents - successor liability

Answer 40

No shareholder approval required Parent corp owning at least 90% of outstanding shares of subsidiary merged the subsidiary into itself

Answer 41

at least 75% of assets fundamental change for seller not buyer no successor liability unless buyer is mere continuation of seller - same management, shareholder - de facto merger

Answer 42

Amendments to articles mergers and consolidations conversion

Answer 43

Voluntary - incorporators and initial directors before shares have been issued and business had commenced - corporate act - board and shareholder approval - can revoke involuntary - attorney general - fraud in obtaining articles or abusing authority - shareholder - director abuse, waste of assets, misconduct, director deadlock, failed to elect directors for 2 annual meetings in a row - creditors if have judgment and insolvent - administrative - can cure within 2 years to be reinstated