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Corporations Flashcards

1
Q

when does a corporation begin existing

A

when articles filed by state

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2
Q

what need to be in the articles of incorporation

A
  1. name of corp
  2. number of authorized shares
  3. include name and address of incorporators and of registered agent

note: if clause limiting corporation’s purpose, activities beyond scope are ultra vires and be be enjoined

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3
Q

what is a promoter

A

someone who acts on behalf of a corporation not yet formed

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4
Q

are promoters liable for preincorporation contracts? what about once corp is formed?

A

yes to both; liability continues absent novation

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5
Q

What happens when a person acts on behalf of a corp they know is not formed

A

person who purports to act on behalf of a corp knowing there was no valid incorporation is personally liable

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6
Q

is corp liable for promoter’s k

A

only if it adopts it

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7
Q

de facto corporation elements

A

colorable compliance with incorporation statute

no knowledge

and exercise of corporate privileges

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8
Q

who is held liable for acts when no corporation is formed

A

only those who acted on behalf of the business; passive investors not liable

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9
Q

corporation by estoppel

A

when people treating business as valid corporation are estopped from denying corporation’s existence and vice versa

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10
Q

do all states recognize de facto and estoppel corps

A

no

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11
Q

when will the court pierce the veil (3 things)

A
  1. alter ego
  2. inadequate capitalization at inception
  3. prevent fraud
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12
Q

when does the alter ego pierce the veil

A

in close corps where
1. shh abused privilege of incorporation
2. fairness must hold them liable

note: sloppy administration is not enough

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13
Q

preventing fraud to pierce the veil

A

when corp is hiding money; cannot be formed to avoid existing or future liability

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14
Q

when does inadequate capital pierce the veil

A

if corporation inadequately capitalized at formation, will pierce the veil

note: more likely to do this with tort claimants than k

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15
Q

what happens when court pierces the veil

A

generally, only active shareholders are liable for corporate debt

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16
Q

two ways to create capital

A

debt securities (bonds)

equity securities (stocks)

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17
Q

issued and outstanding stocks

A

shares sold to investors

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18
Q

subscription agreement rules

A

preincorp subscription agreements are irrevocable for 6 months

most incorporation subscription are irrevocable until accepted

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19
Q

what is acceptable consideration for share

A

any benefit to the corporation; traditionally cash, property, or services

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20
Q

how much consideration is needed to issue shares

A

MBCA: amount set by directors and good faith valuation

Traditional: par value

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21
Q

do shh run the corporations

A

no unless closely held corporation dispenses with board and runs through different scheme

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22
Q

how to shh control corporations

A

indirectly through electing directors, amending bylaws, and approving fundamental changes

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23
Q

what is a record shh

A

shh of record on the record date have a right to vote
- at annual meeting
- regarding fundamental corporate changes

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24
Q

what notice must be given to shh for meetings

A

annual - date, time, location
special meeting - date, time, location, and purpose

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25
what happens if there's improper notice for shh meeting
any action taken at meeting can be nullified unless waives
26
how do proxies work
allow someone to vote for shh; written valid for 11 months
27
are proxies revocable
yes unless 1. specifically provide otherwise and 2. coupled with interest
28
how are proxies revoked
attendance, later appointment, or writing
29
what is a proxy solicitation? what rules?
efforts made to get shh to vote a certain way must fully and fairly disclose all material facts, no misstatements
30
when are self interested dealings allowed under duty of loyalty
when dislocate all material facts and voted and; transaction was fair to company
31
how much for a quorum for board? voting?
majority unless otherwise states; majority of votes of those present
32
how much for quorum for shh? votes?
majority of outstanding shares elect director - plurality remove - maj entitled to vote fund corp. change - man entitled to vote other matters - maj. actually vote
33
how does cumulative voting work
top however many are elected multiply shh number of shares times number to be elected; can split shares however
34
how can shh pool power?
voting trusts (shh transfer ownership to trustee who votes as agreed) voting agreement
35
are shares alienable
generally yes, but may have reasonable restrictions used in close corps
36
is right of first refusal reasonable
yes
37
what rights do shh have in inspection
limited - books, papers, accounting records --> 5 days notice and proper purpose unqualified - articles, bylaws, general stuff
38
what is a preemptive right
right to purchase shares to maintain proportionate ownership interest under MBCA right exists only if provided for
39
what does preemptive right not apply to
a. Shares issued as compensation b. Shares issued within six months of incorporation c. Shares issued for consideration other than money d. Nonvoting shares with a distribution preference
40
direct vs. derivative shh suits
a. Direct suit is to enforce right of shareholder b. Derivative suit is to enforce a right belonging to corporation
41
what standing is needed for a derivative suit
1. owned shares at time of wrong 2. maintain shares through suit 3. demand board to bring suit (unless futile) 4. corp must be joined as D
42
when does derivative suit get dismissed? what happens to the shh who loses?
if a majority of directors with no personal interest determine in good faith that suit is not in best interests of corporation if shh loses, no recovery for fees; if unreasonable, must pay D's litigation expenses
43
is there a right to distributions?
no unless declared by board
44
when can corp not make distributions
when corp unable to pay its debts as they become due or total assets are less than total liabilities
45
when is a director liable for distributions
1) Director who votes for an unlawful distribution is personally liable for the excess 2) Director may seek contribution from other directors who voted for distribution 3) Directors may recover from a shareholder who received a distribution knowing it was unlawful but may rely on good faith defense
46
are shh fiduciaries
no, unless shh in close corporation
47
how do directors vote
must attend in person (no proxies) or online where all can simultaneously here each other
48
what notice needed for director meetings
none for regular, 2 days for special (no purpose needed)
49
can directors delegate to executive committees?
yes, they can exercise authority given, but the committee may not declare distributions, fill board vacancies, or amend bylaws
50
how are directors generally protected from liability
business judgment rule
51
business judgment rule
good faith care of a person in like position best interest of the corp
52
can articles further eliminate director liability?
yes, can eliminate all liability but 1. wrongfully received financial benefits 2. unlawful distributions 3. intentional crimes/torts
53
what duties do directors have
loyalty (good faith with reasonable belief that actions are in best interest of the corporation) and care (reasonable person in like position would reasonably believe appropriate under the circumstances)
54
corporate opportunity doctrine
director may not divert business without giving corporation first shot
55
can director be indemnified for legal expenses in defending
yes if won; if didn't win, discretion under bjr
56
Are there required officer positions in a corporation
MBCA does not require any particular officers
57
how are officers appointed and removed
appointed by board removed by board
58
what is officer authotiry
actual authority given by board apparent authority to do whatever someone in their position would normally have authority to do
59
types of fundamental corporate changes
Amendments to articles, mergers, consolidations, share exchanges, dispositions of substantially all assets outside of the regular course of business
60
procedure for fundamental corporate change
1. Board resolution 2. Notice to shareholders 3. Shareholder approval 4. Articles of the change filed with the state
61
who must approve merger
directors and shh of both corporations exception: parent who owns 90%+ of subsidiary
62
what is the appraisal remedy
shh can force corp to purchase their shares at a fair price if they 1. give notice before vote 2. do not vote in favor of change 3. demand payment after change is approved
63
when does voluntary dissolution happen in corporation
if shares not yet issued, majority of incorporators or initial directors can dissolve after shares issued, may dissolve by corporate act
64
what happens at dissolution
corporation continues to exist to wind down
65
what happens if new claim arises after dissolution
if money to shh already , can try to get pro rata share
66
can corporation cut short time for bringing known claims
yes upon dissolution
67
administrative dissolution
dissolve for failure to pay fees of penalties or file etc
68
judicial dissolution
AG may seek if corporation is fraudulent shh may seek if 1. directors deadlocked 2. directors acted illegally/fraudulently 3. shh deadlocked in vote 4. corporate assets being wasted
69
de jure corporation elements
person; paper; act + organizational meeting
70
creditor dissolution
corporation has admitted in writing that claim is due and corp is insolvent; or creditor's claim deducted to judgment, execution, and corporation is insolvent

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