Corporations Flashcards
unless articles of incorp or bylaws provide otherwise, notice of a special meeting of a corps board of directors must be given…
at least 2 days prior to the date of the meeting
must include info regarding the time, location, and date of the meeting but does not need to include info regarding the purpose of the meeting
a director who attends a special meeting of the board of directors despite not receiving proper notice…
waives such notice unless the director objects to the holding of the meeting and thereafter does not vote at the meeting
in order for action taken at a special meeting of directors to be proper, a ____ must be present at the meeting
quorum
quorum consists of a majority of that fixed number
*unless articles of incorp/bylaws provide otherwise
directors generally are entitled to participate in special meetings over the phone, but such participation is only valid if…
all directors participating may simultaneously hear each other during the meeting
only directors who satisfy this requirements are deemed to be present at the meeting
a corporation comes into existence on
the date the articles of incorporation are filed by the secretary of state’s office
MBCA §2.04 - persons purporting to act as or on behalf of a corporation, knowing there was
no incorporation are jointly and severally liable for all liabilities created while so acting
an erroneous but in good faith belief that incorporation has happened does not constitute knowledge under the section
Generally, co-owners of a for-profit business that has not been properly incorporated are treated as
partners in a partnership and are jointly and severally responsible for all business obligations
defective incorporation - de facto corporation doctrine
courts recognize corp limited liability when there was
(1) a colorable, good-faith attempt to incorporate and
(2) actual use of the corp form, such as by carrying on the business as a corp or contracting in the corporate name
defective incorporation - corporation by estoppel doctrine
- if a third party treats an org as though it were a corp, then that third party may be estopped from denying the org’s corp existence, if the denial would result in unjust harm to the principals
- if an org holds itself out as a corp (even tho its not), that org will be estopped from denying its own corp existence to avoid an obligation or to obtain an unfair benefit
limited liability company (LLC)
if the LLC becomes indebted, obligated, or otherwise liable to
an outside party, no member or manager becomes liable on that debt, obligation, or liability
solely by reason of acting as a member or manager.
gives members flexibility in developing rules for decision making and control
fiduciary relationship
relationship in which members owe one another the duty of utmost trust and loyalty
ordinarily direct competition by members would be precldued as a viol of duty of loyalty unless the LLC agreement provides otherwise
trustee duty of loyalty
to account to the company and to hold as trustee for the company any benefit derived by the member in the conduct of the company’s activities
under most LLC statutes, members of an LLC can agree to
restrict or limit the duty of loyalty, provided the opt-out is specified in the operating agreement
Uniform Limited Liability Company Act - opt-outs of duty of loyalty
If not manifestly unreasonable, the operating agreement may restrict
or eliminate the duty to refrain from competing with the company in the conduct of the company’s business before the dissolution of the company
In addition, so long as it is not
manifestly unreasonable the operating agreement may also identify specific types or categories of activities that do not violate the duty of loyalty
LLC protections do not apply when
1) proper procedures for dissolution and winding up have not been followed, and
2) a court deicdes to pierce the LLCs veil
proper dissolution and winding up of LLC
dissolution requires consent of all the members
winding up requires LLC to provide notice of the dissolution to creditors so that they can make claims against the dissolving entity + steps to do so
if dissolution/winding up procedures are not followed and if the LLC’s assets have been liquidated and distributed to the members
then a creditor’s claim against the LLC may be enforced against each
of the LLC members to the extent of the member’s proportionate share of the claim or to the extent of the assets of the LLC distributed to the member in liquidation, whichever is less.
a member’s total liability for creditor claims may not exceed the total value of assets distributed to the member in dissolution
A derivative action in a member-managed LLC may be brought only if
(1) a demand is made on the other member to bring an action and the member fails to do so, or
(2) such demand would be futile
Piercing the veil in the LLC context
prevents members from hiding behind the veil of limited liability in situations where they have improperly used the LLC form
analyzing whether members have treated the LLC as a separate entity or whether it has instead become the “alter ego” of the members
Each member for whom the veil is pierced becomes subject to joint and several liability to the creditor bringing the claim
siphoned corporate funds, intermingling corp and personal funds
Duties of controlling shareholders
- Generally, courts have examined business dealings between a controlling shareholder (such as a parent corporation) and the controlled corporation using a fairness test.
- But when the transaction does not involve self dealing then the business judgment standard applies.
Shareholder right to inspect board minutes and accounting records
right to inspect minutes of board meetings and accounting records for a proper purpose.
proper purpose = a purpose reasonably related to a person’s interest as a shareholder, such as a desire to determine whether improper transactions have occurred
must offer credible evidence that there was mismanagement or other improper conduct
Under the MBCA, the shareholder’s right to inspect corporate documents relevant to the alleged bribery is subject to certain limitations.
Launching derivative claims
plaintiff-shareholder seeks to bring on behalf of the corporation a claim that vindicates corporate rights, usually based on violation of fiduciary duties
1) shareholder must post a bond to cover costs
2) shareholder must make a demand
3) plaintiff- shareholder must be a contemporaneous owner
Dismissal of shareholder derivative claims
Under the MBCA, the board can seek dismissal of the shareholder’s derivative action if a majority of the board’s qualified directors—those directors who do not have a material interest in the derivative action—determine in good faith, after conducting a reasonable inquiry upon which its conclusions are based, that continuance would be contrary to the corporation’s best interests.
direct action
shareholder makes a claim in her own name against the corp or against a director/officer of the corp for a wrong that was done directly to her
Director liability
A director is liable to the corp for the director’s decisions or failures to take action that were not in good faith
cant viol legal norms even if benefits the corp
good faith standard requires that directors, among other things, not approve (or condone) wrongful or illegal activity
Director’s duty of good faith and fair dealing
The directors have the burden to show that the transaction as a whole was fair in terms of “fair price” and “fair dealing.”
This means courts will inquire into
(1) whether the transaction price was comparable to what might have been obtained in an arm’s-length transaction, given the consideration received by the corporation, and
(2) whether the process followed by the directors in reaching their decision was appropriate.
Director’s duty of care
care that a person in a like position would reasonably believe appropriate under similar circumstances in becoming informed in connection with their decision-making function
faulty decision making process, transaction was wasteful (no reasonable person would pay those prices)
director’s duty of loyalty
a director must act in good faith and with reasonable belief that what he does is in the corporation’s best interest.
BJR does not apply if there’s a duty of loyalty issue
duty of loyalty issue w/ directors
1) director is on both sides of the transaction - director has a material finanical interest in a k as well as knowledge of that interest yet still approves the k
2) competes w/ the corp
3) corporate opportunity - a corp officer may not usurp a corp opportunity
MBCA safe harbors for claim of director breach of loyalty
1) approval by disinterested (qualifid) directors,
2) approval by disinterested (qualified) shareholders, or
3) if the transaction is judged to be fair to the corp at the time it was entered into
qualified = without conflicting interest
MBCA - director’s conflicting interest transactions
one effected by the corporation respecting which the director had knowledge and a material financial interest
material financial interest = finanical interest in a transaction that would reasonably be expected to impair the objectivity of the director’s judgment when authorizing the
transaction
director’s self-dealing transaction is not when
modern corporate law permits such transactions—with the consequence that the business judgment rule applies if, after full disclosure of all relevant facts, qualified directors authorized the transaction.
If, however, the self-dealing transaction is not shown to have been properly authorized, the business judgment rule does not apply and the transaction must be shown to have been fair to the corporation
Business Judgment Rule
- a board of directors enjoys a presumption of sound business judgment that, in making a business decision, directors act in good faith, on an informed basis, and in the honest belief that the action taken is in the best interests of the corporation.
- does not apply upon a showing of illegality or self dealing transaction
Internal affairs of the corporation, such as the conduct of shareholder meetings and election of directors, are subject to the
corporate law of the state of incorporation
Under the MBCA shareholders may amend corp’s bylaws unless
(1) the corporation’s articles reserve that power exclusively to the shareholders or
(2) the shareholders in amending, repealing, or adopting a bylaw expressly provide that the board of directors may not amend, repeal, or reinstate that bylaw
a record date determines
who is entitled to vote at a particular shareholder meeting, namely those persons who were registered as shareholders of record on that date
voting by proxy
a shareholder may vote by proxy. can appt a proxy in writing by signing an appt form or making a verifiable electronic transmission.
revocable and any actin inconsistent w/ the grant of a proxy works as a revocation of that proxy
proxy may be made irrevocable only if
the proxy form explicitly says so and the proxy is coupled w/ an interest
shares that are reacquired by a corporation are considered
authorized but not outstanding.
some juris refer to them as treasury shares
in counting shareholder’s votes, each outstanding share is entitled to one vote on each matter vote on at a shareholder meeting
fairness test applies to parent-subsidiary dealings only where
parent cuaes subsidiary to act in such a way that the parent recieves something from the subsidary to the exclsuion of an detriment to minority shareholders
under business judgment standard, it is sufficent to offer a rational business judgment standard for
no divdend policy
corporate opportunity doctrine
fill in
MBCA gives courts discretion to order judicial dissolution of a corp if
a shareholder can demonstrate that the majority (or controlling) shareholder is acting in a manner that’s oppressive
courts look at whether the conduct of majority shareholders defeats the reasonable expectations that the majority knew or should’ve known were held by minority shareholders (freezing out, refusal to inspect books)
A corporate merger is
a business combination in which two corps are combined into one surviving corp, with the effect that any corp merged into the survivor ceases, the shares of that corporation are converted into shares of the surviving corporation, and the articles of incorporation of the surviving corporation become effective for the resulting entity
Under the MBCA, the plan of merger must first be adopted by a
majority of the corp’s board of directors and then submitted to the corp’ shareholders for their approval.
then receive the vote of at least a majority of the votes entitled to be cast on the plan.
under the MBCA, a sahreholder who dissents from certain fundamental corp transactins, including a merger, is entitled to
demand payment in cash for her shares through negotitation or judicial appraisal
§ 8.01 of the Model Business Corporation Act
except as provided in shareholders’ agreement, and subject to any limitation in the articles of incorp, all corp powers shall be exercised by the board of directors of the corporation.
make ks and incur liabilites
