Corporations Flashcards
when does a corporation begin existing
when articles filed by state
what need to be in the articles of incorporation
- name of corp
- number of authorized shares
- 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
what is a promoter
someone who acts on behalf of a corporation not yet formed
are promoters liable for preincorporation contracts? what about once corp is formed?
yes to both; liability continues absent novation
What happens when a person acts on behalf of a corp they know is not formed
person who purports to act on behalf of a corp knowing there was no valid incorporation is personally liable
is corp liable for promoter’s k
only if it adopts it
de facto corporation elements
colorable compliance with incorporation statute
no knowledge
and exercise of corporate privileges
who is held liable for acts when no corporation is formed
only those who acted on behalf of the business; passive investors not liable
corporation by estoppel
when people treating business as valid corporation are estopped from denying corporation’s existence and vice versa
do all states recognize de facto and estoppel corps
no
when will the court pierce the veil (3 things)
- alter ego
- inadequate capitalization at inception
- prevent fraud
when does the alter ego pierce the veil
in close corps where
1. shh abused privilege of incorporation
2. fairness must hold them liable
note: sloppy administration is not enough
preventing fraud to pierce the veil
when corp is hiding money; cannot be formed to avoid existing or future liability
when does inadequate capital pierce the veil
if corporation inadequately capitalized at formation, will pierce the veil
note: more likely to do this with tort claimants than k
what happens when court pierces the veil
generally, only active shareholders are liable for corporate debt
two ways to create capital
debt securities (bonds)
equity securities (stocks)
issued and outstanding stocks
shares sold to investors
subscription agreement rules
preincorp subscription agreements are irrevocable for 6 months
most incorporation subscription are irrevocable until accepted
what is acceptable consideration for share
any benefit to the corporation; traditionally cash, property, or services
how much consideration is needed to issue shares
MBCA: amount set by directors and good faith valuation
Traditional: par value
do shh run the corporations
no unless closely held corporation dispenses with board and runs through different scheme
how to shh control corporations
indirectly through electing directors, amending bylaws, and approving fundamental changes
what is a record shh
shh of record on the record date have a right to vote
- at annual meeting
- regarding fundamental corporate changes
what notice must be given to shh for meetings
annual - date, time, location
special meeting - date, time, location, and purpose
what happens if there’s improper notice for shh meeting
any action taken at meeting can be nullified unless waives
how do proxies work
allow someone to vote for shh; written valid for 11 months
are proxies revocable
yes unless 1. specifically provide otherwise and 2. coupled with interest
how are proxies revoked
attendance, later appointment, or writing
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
when are self interested dealings allowed under duty of loyalty
when dislocate all material facts and voted and;
transaction was fair to company
how much for a quorum for board? voting?
majority unless otherwise states; majority of votes of those present
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
how does cumulative voting work
top however many are elected
multiply shh number of shares times number to be elected; can split shares however
how can shh pool power?
voting trusts (shh transfer ownership to trustee who votes as agreed)
voting agreement
are shares alienable
generally yes, but may have reasonable restrictions
used in close corps
is right of first refusal reasonable
yes
what rights do shh have in inspection
limited - books, papers, accounting records –> 5 days notice and proper purpose
unqualified - articles, bylaws, general stuff
what is a preemptive right
right to purchase shares to maintain proportionate ownership interest
under MBCA right exists only if provided for
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
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
what standing is needed for a derivative suit
- owned shares at time of wrong
- maintain shares through suit
- demand board to bring suit (unless futile)
- corp must be joined as D
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
is there a right to distributions?
no unless declared by board
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
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
are shh fiduciaries
no, unless shh in close corporation
how do directors vote
must attend in person (no proxies) or online where all can simultaneously here each other
what notice needed for director meetings
none for regular, 2 days for special (no purpose needed)
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
how are directors generally protected from liability
business judgment rule
business judgment rule
good faith
care of a person in like position
best interest of the corp
can articles further eliminate director liability?
yes, can eliminate all liability but
1. wrongfully received financial benefits
2. unlawful distributions
3. intentional crimes/torts
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)
corporate opportunity doctrine
director may not divert business without giving corporation first shot
can director be indemnified for legal expenses in defending
yes if won;
if didn’t win, discretion under bjr
Are there required officer positions in a corporation
MBCA does not require any particular officers
how are officers appointed and removed
appointed by board
removed by board
what is officer authotiry
actual authority given by board
apparent authority to do whatever someone in their position would normally have authority to do
types of fundamental corporate changes
Amendments to articles, mergers, consolidations, share exchanges, dispositions of
substantially all assets outside of the regular course of business
procedure for fundamental corporate change
- Board resolution
- Notice to shareholders
- Shareholder approval
- Articles of the change filed with the state
who must approve merger
directors and shh of both corporations
exception: parent who owns 90%+ of subsidiary
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
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
what happens at dissolution
corporation continues to exist to wind down
what happens if new claim arises after dissolution
if money to shh already , can try to get pro rata share
can corporation cut short time for bringing known claims
yes upon dissolution
administrative dissolution
dissolve for failure to pay fees of penalties or file etc
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
de jure corporation elements
person; paper; act
+ organizational meeting
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
