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Bar Prep > Corporations > Flashcards

Corporations Flashcards

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1
Q

promoter

A

fiduciary who finds investors for corporation before it is a corporation; personally liable for his acts

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2
Q

exceptions to promoter liability

A
  • novation
  • adoption by corporation accepting benefits of promoter’s contract
  • promoter doesn’t know corporation hasn’t been formed yet
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3
Q

articles of incorporation must include…

A
  • name of corporation with suffix
  • agent of corp
  • names and addresses of incorporators
  • duration
  • purpose
  • authorized shares
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4
Q

corporation’s liability begins when…

A

articles are filed with state and state accepts filing fee

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5
Q

amendment of bylaws vs. articles

A

bylaws: Board can amend
articles: amendment requires vote of shareholders

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6
Q

corporation by estoppel

A

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

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7
Q

authorized shares

A

maximum number of shares the Board can sell to shareholders

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8
Q

issued shares

A

number of shares that have once been in the hands of shareholders

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9
Q

outstanding shares

A

number of shares that are currently in the hands of shareholders; the voting group

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10
Q

treasury shares

A

number of shares that were sold to shareholders and bought back by the corporation

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11
Q

stock subscription

A

purchase of stock before corporation is formed; irrevocable for six months

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12
Q

preemptive rights

A

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

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13
Q

limitations on Board’s power to declare dividends

A
  • company is insolvent
  • issuing the dividends would make the company insolvent
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14
Q

participating stock

A

collects as preferred and common stock

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15
Q

cumulative stock

A

right to receive dividends rolls over between years if company doesn’t pay them one year

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16
Q

exceptions to the alienability of stock

A

closely held corporations may impose restrictions on the transfer of stock as long as it is conspicuously noted and the shareholder agrees

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17
Q

Rule 10b-5 violation

A
  • 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
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18
Q

Section 16(b) violation

A

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

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19
Q

corporate insider

A

directors, officers, and shareholders who hold more than 10% stock

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20
Q

annual shareholder meeting

A

to vote on new directors

21
Q

special shareholder meeting

A

to vote on fundamental changes to corporation

22
Q

fundamental change to corporation

A

merger, consolidation, dissolution; must be approved by shareholders and directors

23
Q

involuntary corporate dissolution

A

by disgruntled parties
- creditors if not paying debts
- shareholders if assets being wasted or directors are fraudulent or deadlocked with shareholders

24
Q

shareholder’s appraisal rights

A

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.

25
Q

proxy agreement

A
  • signed by shareholder as of the record date
  • sent to secretary of corporation
  • states that shareholder permits person to vote by proxy
26
Q

record date

A

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

27
Q

quorum for shareholder meeting

A

majority of eligible-to-vote shares present at beginning of meeting

28
Q

quorum for Board meeting

A

majority of total directors present at time of vote

29
Q

presence of a Board director at a meeting

A

cannot be by proxy; can be by communications equipment that enables director to hear and be heard by all others present

30
Q

cumulative voting

A

for elections of the Board of Directors, allows minority shareholders to multiply their shares by the number of open director positions to vote with

31
Q

shareholder’s inspection rights

A

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

32
Q

controlling shareholder

A

shareholder who owns more than 50% or an otherwise large enough share such that they exert some control over corporation

33
Q

duties of controlling shareholder

A
  • 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
34
Q

standing requirements for derivative lawsuit

A
  • owned share at time of offense
  • owns share now
  • continues to own share during lawsuit
  • fairly and adequately represents corporation’s interests
35
Q

derivative lawsuit

A

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

36
Q

shareholder liability

A

shareholders are not personally liable for the obligations of the corporation unless a court chooses to pierce the veil

37
Q

pierce the veil

A

more likely for torts and for small companies

  • alter ego: shareholder treats corporation as itself
  • undercapitalization
  • fraud
38
Q

notice for Board meetings

A

special meeting: directors must have two days’ notice, need not say purpose
regular meeting: no notice needed

39
Q

notice for shareholder meetings

A

10-60 days before meeting
regular: date, time, location
special: date, time, location, purpose

40
Q

director’s dissent

A

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

41
Q

director’s duty of care

A

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

42
Q

business judgment rule

A

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

43
Q

director’s duty of loyalty

A

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

44
Q

self-dealing

A

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

45
Q

interest or expectancy test

A

whether the corporation had an existing interest in it or an expectancy arising from an existing right

46
Q

line-of-business test

A

broader; whether the opportunity is within the corporation’s current or prospective line of business

47
Q

safe harbors for self-dealing

A
  • disclosure to all disinterested directors and they approve
  • disclosure to all shareholders and they approve
  • procedural and substantive fairness to corporation
48
Q

limited liability corporation (LLC)

A

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

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