Corporations Flashcards
What may be included in a corporation’s bylaws?
Any information regarding the operation of a corporation not inconsistent with the articles of incorporation or the law
What is a proxy?
A writing signed by the record SH, directed to the secretary of a corp. authorizing a third party to vote their shares at a shareholder meeting
What is the business judgment rule?
A presumption applied by courts that whenever a Board takes action they act (1) in good faith (2) with the care of a reasonable person in like circumstances (3) in the best interests of the corporation
When may a corporation NOT limit director liability for damages for breach of fiduciary duties?
When the director received a benefit to which they were not entitled, the director intentionally inflicted harm on the corporation/SH or committed a crime, or where a director approved unlawful distributions
When may a director be relieved of liability for violating the duty of loyalty based on a self dealing transaction?
When the transaction was fair to the corporation or the director disclosed all material facts regarding the transaction and the transaction was approved by a majority of disinterested board members OR shareholders.
When does an officer have actual authority?
Unless specifically excluded by the corporation, officer has actual authority to enter ordinary contracts involving the day to day operation of the corporation
When does the exercise of authority by an officer require Board approval?
Extraordinary transactions by an officer require an express grant of authority by the Board (but the Board cannot delegate more authority than it has).
What is required for a shareholder to exercise their dissenting right of appraisal?
A shareholder must (1) give written notice of their objection and intent to demand payment prior to or at SH meeting (2) abstain or vote against the proposal at the shareholder meeting (3) send the corporation a written demand for the fair value of their shares and deposit shares as directed by the corporation
What is the duty of loyalty owed by a Director to a corporation?
The Director must exercise their duties in good faith, in a manner they reasonably believe is in the best interest of the corporation
What is the duty of care owed by a Director to a corporation?
The Director must exercise the amount of care that a reasonable person would believe is appropriate under the circumstances.
What is required for a SH to bring a derivate suit on behalf of a corporation?
1) The SH must have standing (have been a SH at the time the claim arose or received their shares by operation of law from someone who was)
2) The SH must fairly and adequately represent the corporation’s interest
3) The SH must have made a written request that the corporation take suitable action (not required in some jdx. if request would be futile)
4) The corporation must be named as a defendant in the suit
When may a court order dismissal of a SH derivative suit upon motion by the corporation?
1) When an independent investigation by the corporation determined that the suit is not in the corporation’s best interest (2) the investigation was reasonable
When does the de facto corporation doctrine shield SH from personal liability?
When there was a colorable, good faith attempt to comply with a relevant incorporation statute and there has been an exercise of corporate privileges (parties acting as if there is a corporation)
Does not apply in actions by the state
When is a party estopped from denying a corporation’s existence?
When the party deals with an entity as if it were a corporation, as it pertains to contracts (not torts)
What is the liability of a promoter for contracts formed prior to a corporation’s formation?
The promoter is personally liable on that contract even after the corporation is formed unless there is a novation
What is the liability of a corporations for contracts formed prior to its formation?
The corporation is NOT liable on the contract unless they expressly (corporate act) or impliedly (accepting benefits) adopt the contract.
Under modern statutes (MBCA), what is acceptable consideration for the issuance of stock?
Any tangible or intangible property or benefit to the corporation received in exchange for the issuance of stock (including work already performed and/or promise to do something in the future)
When may a court pierce the corporate veil in a close corporation?
(1) A shareholder has abused the privilege of incorporation (e.g. “alter ego”, undercapitalization at time of formation)
(2) Fairness requires holding the SH personally liable
What is the quorum required for SH meetings?
A majority of outstanding shares
How does cumulative voting for Directors compare to straight voting?
Cumulative voting: multiply number of shares by number of Directors being elected, and divide voting power between seats in whatever manner
Straight voting: each outstanding share gets one vote for each seat
What types of matters require a majority of shares entitled to vote to be approved (as opposed to majority of shares actually voted?)
Fundamental corporate changes, removal of a Director
What are fundamental corporate changes triggering the requirement for fundamental change procedure?
Amending the articles of incorporation, merger/consolidation, sale of substantially all corporate assets, conversion to another form of business (e.g. LLC), dissolution of a corporation
What is a shareholder’s preemptive right, and what are the limitations on the right under modern statutes?
The preemptive right gives a shareholder the right to maintain their % of ownership in the corporation anytime there is an issuance of stock for money.
Right must be mentioned in the Articles of Incorporation, and does not apply w/i six months of incorporation or if shares are issued with no voting rights.
What is the consequence of failure to provide required notice for a Board/SH meeting?
The corporate act may be void unless the parties who did not receive notice waive their right to notice (1) in writing or (2) by attending the meeting (other than attendance just to object)
