Corporations Flashcards
promoter
fiduciary who finds investors for corporation before it is a corporation; personally liable for his acts
exceptions to promoter liability
- novation
- adoption by corporation accepting benefits of promoter’s contract
- promoter doesn’t know corporation hasn’t been formed yet
articles of incorporation must include…
- name of corporation with suffix
- agent of corp
- names and addresses of incorporators
- duration
- purpose
- authorized shares
corporation’s liability begins when…
articles are filed with state and state accepts filing fee
amendment of bylaws vs. articles
bylaws: Board can amend
articles: amendment requires vote of shareholders
corporation by estoppel
third party is estopped from claiming corporation isn’t a corporation if:
- organizers made good-faith effort to comply
- organizers didn’t know about defect
authorized shares
maximum number of shares the Board can sell to shareholders
issued shares
number of shares that have once been in the hands of shareholders
outstanding shares
number of shares that are currently in the hands of shareholders; the voting group
treasury shares
number of shares that were sold to shareholders and bought back by the corporation
stock subscription
purchase of stock before corporation is formed; irrevocable for six months
preemptive rights
empowers shareholder to get more stocks so their ownership percentage is not diluted by more shares being sold to others; by default, no preemptive rights
limitations on Board’s power to declare dividends
- company is insolvent
- issuing the dividends would make the company insolvent
participating stock
collects as preferred and common stock
cumulative stock
right to receive dividends rolls over between years if company doesn’t pay them one year
exceptions to the alienability of stock
closely held corporations may impose restrictions on the transfer of stock as long as it is conspicuously noted and the shareholder agrees
Rule 10b-5 violation
- transaction involved interstate commerce
- defendant engaged in fraudulent or deceptive conduct
- related to material information
- intentionally or recklessly
- plaintiff relied on the conduct
- plaintiff purchased or sold stock
- and suffered harm because of it
Section 16(b) violation
for corporations traded on national stock exchange or with assets greater than $10M and more than 500 shareholders, no corporate insider may profit from buying and selling corporate stock in any six-month period
corporate insider
directors, officers, and shareholders who hold more than 10% stock
annual shareholder meeting
to vote on new directors
special shareholder meeting
to vote on fundamental changes to corporation
fundamental change to corporation
merger, consolidation, dissolution; must be approved by shareholders and directors
involuntary corporate dissolution
by disgruntled parties
- creditors if not paying debts
- shareholders if assets being wasted or directors are fraudulent or deadlocked with shareholders
shareholder’s appraisal rights
to dissent, a shareholder must do all of the following:
- send written notice of intent to dissent before meeting
- vote no or abstain during meeting
- make prompt written demand of market value for shares after meeting
Because the decision was Stupid, Vain, And Dumb.
proxy agreement
- signed by shareholder as of the record date
- sent to secretary of corporation
- states that shareholder permits person to vote by proxy
record date
date on which a person must own stock to be eligible to vote at meeting; must be set by corporation no earlier than 70 days ahead of meeting
quorum for shareholder meeting
majority of eligible-to-vote shares present at beginning of meeting
quorum for Board meeting
majority of total directors present at time of vote
presence of a Board director at a meeting
cannot be by proxy; can be by communications equipment that enables director to hear and be heard by all others present
cumulative voting
for elections of the Board of Directors, allows minority shareholders to multiply their shares by the number of open director positions to vote with
shareholder’s inspection rights
the right to inspect the books and records of the corporation in person or through an agent during regular business hours with five days’ notice and a proper purpose
controlling shareholder
shareholder who owns more than 50% or an otherwise large enough share such that they exert some control over corporation
duties of controlling shareholder
- to corporation: subject to business judgment rule
- to minority shareholders: good faith and fair dealing
examples: disclose necessary information for a vote; don’t sell stock to a looter; don’t receive dividend that others don’t
analyzed under business judgment rule
standing requirements for derivative lawsuit
- owned share at time of offense
- owns share now
- continues to own share during lawsuit
- fairly and adequately represents corporation’s interests
derivative lawsuit
lawsuit brought by a shareholder on behalf of corporation after shareholder first makes a demand on the Board to bring the suit themselves; damages go to corporation
shareholder liability
shareholders are not personally liable for the obligations of the corporation unless a court chooses to pierce the veil
pierce the veil
more likely for torts and for small companies
- alter ego: shareholder treats corporation as itself
- undercapitalization
- fraud
notice for Board meetings
special meeting: directors must have two days’ notice, need not say purpose
regular meeting: no notice needed
notice for shareholder meetings
10-60 days before meeting
regular: date, time, location
special: date, time, location, purpose
director’s dissent
director dissents by one of the following:
- Entering dissent in meeting minutes
- before meeting is adjourned, Filing written dissent
- after meeting, immediately Sending written dissent to secretary
Director EFS the Board
director’s duty of care
duty to act as a reasonably prudent person in similar circumstances would, including
- duty to investigate
- duty to use special skills if you have them
permits reliance on other officers, committee, or outside experts
business judgment rule
rebuttable presumption that a director reasonably believed he acted in the best interests of the corporation; even a violation of the duty of care will not create liability unless not in good faith; does not apply to transactions with self-dealing, fraud, or illegality
director’s duty of loyalty
may not receive an unfair benefit to the detriment of the corporation without disclosure and ratification, including
- duty not to usurp corporate opportunity (must first offer it to the corporation)
- duty not to advance interests adverse
- duty not to self-deal
self-dealing
any transaction in which the director has a financial and material interest of such financial significance to the director that it would reasonably be expected to influence the director’s vote on the transaction
interest or expectancy test
whether the corporation had an existing interest in it or an expectancy arising from an existing right
line-of-business test
broader; whether the opportunity is within the corporation’s current or prospective line of business
safe harbors for self-dealing
- disclosure to all disinterested directors and they approve
- disclosure to all shareholders and they approve
- procedural and substantive fairness to corporation
limited liability corporation (LLC)
must file signed articles of organization and operating agreement; members owe fiduciary duties to each other and the LLC; members are not personally liable but receive tax treatment of partnership
