Corporations Flashcards
Special Mtg Notice
Directors are entitled to notice of a special meeting.
Unless the articles of incorporation or bylaws provide otherwise, **notice must be provided at least two days prior to the meeting **
Notice ** must include date, time, and place **of the meeting. The notice need not describe the purpose of the special meeting.
Waiver of right to notice of special meetings
A director’s attendance waives notice of that meeting unless the director promptly objects to lack of notice
Look for… did they attend mtg/ vote / and not raise objection
Quorum
For the board of directors’ acts at a meeting to be valid, a quorum of directors must be present at the meeting.
A majority of all directors in office constitutes a quorum, unless the articles of incorporation or bylaws require a higher or lower number.
A director must be present at the time that the vote is taken in order to be counted for quorum purposes
What constitutes presence for Quorum
A director must be present at the time that the vote is taken in order to be counted for quorum purposes
Presence includes appearances made through communications equipment that allows all persons participating in the meeting to hear and speak to one another.
Requisite votes for approval
Typically, the assent of a majority of the directors present at the time the vote takes place is necessary for board approval.
However, the articles of incorporation or bylaws may specify a higher level of approval.
How to form corporation
In order to form a corporation, articles of incorporation **must be filed with the state. **
The articles must include the corporate name and any other state stat. reqs.
Unless a delayed date is specified in the articles, the corporate existence begins when the articles are filed.
Operations as a non-compliant corporation
When a person conducts business as a corporation without attempting to comply with the statutory incorporation requirements, that person is liable for any obligations incurred in the name of the nonexistent corporation.
When a corporation has not been created, the **entity may be treated as a general partnership. **
==> A partnership is an association of two or more persons to carry on a for-profit business as co-owners. In a general partnership, each partner is jointly and severally liable for all partnership obligations.
IF D made a **good-faith **attempt to comply with the statutory requirements for incorporation ==> not liable
De jure corporation x personal liability
When all of the statutory requirements for incorporation have been satisfied, a de jure corporation is created.
Consequently, the **corporation, rather than persons associated with the corporation, is liable **for activities undertaken by the corporation.
Two Ways for owner to escape PL where a corp has not been properly formed
De facto C— the owner must make a good-faith effort to comply with the incorporation requirements and operate C without knowing the requirements were not met
==> then (under RMBCA) treated as
Corporation by estoppel— a person dealing with an entity in a contractual agreement as if it were a C is estopped from denying its existence and seeking personal liability
Note: RMBCA has abolished the de facto corporation, as have many jurisdictions that have adopted the RMBCA.
Business Judgement Rule
The business judgment rule is a rebuttable presumption that the controlling shareholder reasonably believed that his actions were in the best interests of the corporation.
A typical decision protected by the business judgment rule includes whether to declare a dividend and the amount of any dividend.
The business judgment rule does not apply in a conflict-of-interest transaction.
Business dealings between a controlling shareholder and the controlled corporation that do not involve self-dealing are analyzed using the business judgment standard.
Controlling shareholder’s duties to corp OR other shareholders
A controlling shareholder, such as a parent corporation, generally does not owe fiduciary duties to the corporation or other shareholders.
However, decisions by a majority shareholder or control group may be reviewable by a court for good faith and fair dealing toward the minority shareholders under the court’s inherent equity power.
Duty of Loyalty
Requires D to act in a manner that D reasonably believes is in the best
interest of C
==> avoid improper conflicts of interest
EXAMPLES
If a parent corporation causes its subsidiary to participate in a business transaction that prefers the parent at the expense of the subsidiary, it can involve self-dealing and a breach of loyalty.
A director may violate his duty of loyalty by usurping a corporate opportunity rather than first offering the opportunity to the corporation
Three Harbors of COI Transaction
There are three safe harbors by which a conflict-of-interest transaction may enjoy protection:
(i) disclosure of all material facts to, and ** approval by a majority of, the board of directors ** without a conflicting interest;
(ii) disclosure of all material facts to, and approval by a majority of, the votes entitled to be cast by the shareholders without a conflicting interest; **and **
(iii) fairness of the transaction to the corporation at the time of commencement.
==> The fairness test looks at the substance and procedure of the transaction. [BOP on directors]
==> Substantively, the test asks whether the corporation received something of comparable value in exchange for what it gave to the director.
==> Procedurally, it looks at whether the process followed by the directors in reaching their decision was appropriate.
**T: ** a conflict-of-interest transaction in violation of the safe-harbor provisions **may be enjoined or rescinded, **and the corporation may seek damages from the directors
How to ID whether an opportunity should first be offerred to a corporation
“interest or expectancy” test or the “line of business” test.
“Interest or expectancy” test
= the key is whether the corporation has an existing interest or an expectancy arising from an existing right in the opportunity. An expectancy can also exist when the corporation is actively seeking a similar opportunity.
** “Line of business” test**,
= the key is whether the opportunity is within the corporation’s current or prospective line of business. Whether an opportunity satisfies this test frequently turns on how expansively the corporation’s line of business is characterized.
==> broader
Duty of Care
Directors have a duty to act with the care that a person in a like position would reasonably believe appropriate under similar circumstances.
==> The director is presumed to have the knowledge and skills of an ordinarily prudent person, and is required to use any additional knowledge or special skills that he possesses.
==> Normally, the party alleging a violation of the duty of care must rebut the business judgment rule
