Corporations

Question 1

Shareholders?

Answer 1

Only owners and do not manage the company, thus they just have general meetings.

need 10-60 day notice of a meeting and need time, place, manner, and purpose.

Question 2

Creating a corporation?

Answer 2

1. Have to file articles of incorporation with the state
2. If Articles are in conflict with bylaws, the articles control

Question 3

Who is liable for contracts made before corporation is incorporated?

Answer 3

corporations are not liable for contracts made on their behalf before they incorporate. The Promoter will be liable.

UNLESS: they ratify the contract.

Question 4

Shareholder voting?

Answer 4

Proxy

agreement

Need a quorum (majority of all outstanding shares) to be present to vote. Leaving does not break the quorum.

Need to hear each other and everyone else.

Question 5

Rules for directors?

Answer 5

1. Manage the corp and act as a body by voting
2. Can bee hired or fired by shareholders

Question 6

Voting rules for Directors?

Answer 6

Cannot vote by proxy or agreement

Quorum needs to be present to vote

can break quorum by leaving

Only get notice for a special meeting

Question 7

Typical outcome of a duty of loyalty or duty of care question?

Answer 7

Typically they will be found to have breeched

Question 8

Duty of Care - business judgement rule

Answer 8

1. There is a presumption that the director acted:

        1. on an informed basis
        2. in good faith 
        3. in honest belief the action was in the corps best interest. 

2. They are entitled to rely on info of corporate officers, legal counsel, accountants, etc. when making decision
3. Burden of proof in on opposing party
4. Does not apply to situations of self dealing

Question 9

Duty of Loyalty

Answer 9

1. Duty of care does not come into play when D.O.L. applies.
2. D.O.L. comes up in three scenarios
   1. BCC
      1. Director is on Both sides of a transaction
      2. Director has material interest in Contract but voted to approve it
      3. Usurps a Corporate opportunity
   2. Competes with a corp
   3. Usurps a corporate opportunity

Question 10

Defenses to liability for breach of duty to loyalty

Answer 10

1. MBCA has three safe harbors to protect a director that breeches duty

      1. Approval by disintentersted directors 
      2. Approval by disinterested share holders
      3. Transaction is fair at the time its entered

Question 11

Waiver of duty by LLC?

Answer 11

an LLC operating agreement may waive duty of loyalty so long as its not unreasonable

Question 12

Voting requirements for shareholders?

Answer 12

need a quorum present

to pass, need more votes for than against

Question 13

Who votes?

Answer 13

1. Record owner determines who is entitled to vote at a meeting
   1. people who are registered as shareholders on a particular date
   2. Unless articles say otherwise, each share is entitled one vote on each matter
2. exceptions
   1. died, then executor gets it
   2. proxy

Question 14

Voting by proxy?

Answer 14

1. shareholders may vote by proxy.
2. Can appoint a proxy by signing an appointment form or electronic transmission
3. Proxies are generally revocable, and any action inconsistent with grant of proxy revokes it. Can expire after 11 months.
   1. Exception
   1. Not revocable if out says so and coupled with an interest

Question 15

Shareholder against corp lawsuit

Answer 15

shareholders can sue to establish acts of the director are illegal, fraudulent, or unfair and oppressive to the corp OR the shareholder.

Question 16

Two types of share holder against corp lawsuits?

Answer 16

Direct and Derivative

Question 17

Derivative shareholder lawsuit?

Answer 17

1. Is appropriate when the injury is caused to the corp and a shareholder wants to enforce the Corps rights
2. Special requirements
   
   1. Standing
      2. adequacy (shareholder represents corp interests)
   2. Demand (should wait 90 days unless irreparable harm will be done).
3. Can be dismissed if not in Corps best interest

Question 18

Direct shareholder lawsuit?

Answer 18

breech of duty owed to the individual personally

Question 19

Piercing the corp veil?

Answer 19

1. lawsuit against shareholders themselves because they themselves acted bad.
2. Only allowed in close corps and LLCs.
3. Must show:
   1. Shareholders abused privilege of inc and fairness
   2. Undercapitalization
   3. Failure to follow formalities
   4. Deception

Question 20

Shareholders right to inspect corporate books?

Answer 20

1. Shareholder has right to inspect books so long as demand is in good faith and for proper purpose.
2. Proper purpose
   
   1. Must state purpose
   2. Records he desires to inspect
   3. Records are related to purpose

Question 21

Formation of an LLC?

Answer 21

1. Must file articles of organization
2. Generally analyzed in the context of corporate or partnership law

Question 22

Duties of LLC?

Answer 22

Fiduciary

Question 23

Agency of LLC?

Answer 23

Members are treated as agents of the LLC with actual and apparent authority to bind the LLC to ordinary - not extraordinary - affairs

Question 24

Dissociation of LLC?

Answer 24

If a member leaves, the LLC does not wind up or dissolve unless all agree

Question 25

Liability for LLC?

Answer 25

1. individual members are only liable for losses ifL
   1. Pierce the LLC veil
   2. proper procedures for dissolution and winding up aren’t followed
2. Creditors can enforce claims against each member, but a members total liability may not exceed the total value of assets distributed to member in dissolution

Question 26

Member managed vs. manager managed?

Answer 26

1. Member managed is direct management of LLC by members
2. Manager managed is central management of the LLC by one of managers who do not need to be managers
3. Unless the operating agreement or cert of formation specify, member managed is default

Question 27

What if someone leaves an LLC?

Answer 27

Still permitted to receive distributions from the LLC, but is not entitled to receiver of assetts.