Corporations

Question 1

corporation formation requirements

Answer 1

File articles of incorporation with SoS
- Name of corporation
- Name/address of incorporator
- Name/address of agent
- Information about stock

Question 2

Defective incorporation

Answer 2

de facto corporation
corporation by estoppel

Question 3

de facto corporation

Answer 3

if there is a relevant incorporation statute, if the incorporators made a good faith attempt to form a corporation and did not know corporation was defective, and acted w/corporate power, the law will treat the defective organization as a corporation

For tort and contract suits

Question 4

Corporation by estoppel

Answer 4

if the third party treated the defective corporation as a a corporation, the third party is estopped from denying it is a corporation

Question 5

promoters

Answer 5

Promoter are personally liable for pre-incorporation agreements, even if the corporation adopts them post-incorporation
Exceptions:
- Novation
- Indemnification

Question 6

how board of directors may act as group

Answer 6

Unanimous agreement in writing OR
At a meeting, which satisfies the quorum and voting requirements

Question 7

board metings

Answer 7

Regular meetings: notice not required
pecial meetings: 2 days written notice of date, time, place is required (need not state purpose)

Failure to give notice means that actions at meeting are voidable unless absent, unnotified directors waive the notice defect (1) In writing at any time OR (2) Attend the meeting w/o objection at outset of meeting

requires quorum of directors to be present at any meeting

if quorum present, resolution requires a majority

Question 8

election/removal of directors

Answer 8

Elected and removed at will by shareholders
Exception: staggered elections

Question 9

standards for director’s fiduciary duties

Answer 9

Duty of care: Director must perform duties in good faith and with reasonable belief that her actions are in the best interest of the corporation

Standard: Director must use the care that a person in a similar position would reasonably believe appropriate in the circumstances

Question 10

business judgment rule

Answer 10

directors who meet the standard of care will not be liable for corporate decisions that in hindsight turn out to be erroneous (good faith performance w/reasonable belief it is in best interest of company)

(if at time of decision, the board did appropriate homework and made reasonable decision; good faith, informed, rational basis)

Question 11

director’s duty of loyalty

Answer 11

Conflicting interest transaction: occur when an individual or entity has competing interests or loyalties that could interfere with their ability to make unbiased decisions.

Corporate opportunity doctrine: director’s fiduciary duties prohibit them from diverting a business opportunity from the corporation to themselves without giving corporation the opportunity to act first

Question 12

• Officers’ powers

Answer 12

(application of Agency law)
- Actual authority
- Apparent authority
- Owe duties of care and loyalty

Question 13

shareholder’s management and liability in corporation and close corporations

Answer 13

Corporations: generally, board of directors run corporation
◊ Shareholders not personally liable

Close corporations: shareholders run the corporation directly (few shareholders, not publicly traded)
◊ Shareholders not personally liable

Question 14

piercing the corporate veil (close corporations)

Answer 14

1. the shareholders must have abused the privilege of incorporating AND
2. Fairness requires holding them liable

Common scenarios:
Undercapitalization: when corporation is underfunded at the time of incorporation
Alter ego: shareholders are treating the corporation as an extension of their person by commingling corporate and personal assets
Fraud, evasion of statutory provisions, or avoidance of existing obligations

Question 15

shareholder meetings

Answer 15

Convening meetings: shareholders take action in meeting or by unanimous written (email ok) consent
- Meeting must be for a proper shareholder purpose

Annual meetings: Corporations must hold annual shareholders meetings

Special meetings: may be called by (1) board of directors, (2) president, (3) holders of at least 10% of shares, or (4) anyone authorized to do so by articles of incorporation

Question 16

notice of shareholder meetings

Answer 16

Timing: shareholders must be notified of meeting no fewer than 10 days and no more than 60 days before meeting

Form: notice must be in writing to every shareholder entitled to vote

Waiver: may be waived in writing or by attendance

Contents: Date, time, place of meeting

Special meeting’s notice must state purpose of meeting; can’t do anything if purpose is not state

Question 17

consequences of improper notice of shareholder meeting

Answer 17

If proper notice is not given to all shareholders, then whatever action was taken at the meeting is voidable (or void) unless those not notified waive notice
Waiver via express waiver or implied waiver (attending meeting w/o objection

Question 18

shareholder meeting content

Answer 18

Director election
Director removal
Fundamental corporate change

Question 19

shareholder how to meet/vote requirements

Answer 19

quorum representation required at each meeting

votes:
One share, one vote
Shareholders will be deemed to have approved a matter if the votes in favor exceed votes cast against (unless stated otherwise, must be greater than 50%)

director vote requires plurality

fundamental corporate change:
- traditional rule: majority of shares entitled to vote
-modern trend: majority of shares actually voting

others: majority of shares actually voting

Question 20

voting proxies

Answer 20

Person who votes on shares is the owner at record time

Proxies: shareholders can appoint proxies to vote for them if in writing signed by record shareholder and directed at secretary

Generally presumed revocable unless proxy is given a security and irrevocable nature is expressed

Revocation: revocable by shareholder, may be revoked by shareholder attending meeting, in writing, or by subsequent appointment of another proxy

Question 21

Derivative suits

Answer 21

derivative suit is a suit a shareholder brings on behalf of corporation

Standing: stock ownership at time of wrong: shareholder must have been a shareholder or have become a shareholder through transfer by operation of law (inheritance or divorce decree)

Adequate representation: shareholder must represent corporation’s interests fairly and accurately

Demand requests: MCBA: Shareholder must make a written demand on the corporation ; may not be required if such demand would be futile

Question 22

fundamental corporate changes

Answer 22

• Amending articles
• Merging/consolidating with another company
• Transferring substantially all assets
• Converting to another form of business
• Dissolving

Question 23

voluntary dissolution

Answer 23

• dissolution by incorporators or initial directors
  dissolution by corporate act (fundamental change procedure)

Question 24

Involuntary dissolution: judicial dissolution, via court order

Answer 24

Action by attorney general: AG can seek judicial dissolution on grounds that corp fraudulently obtained its articles or incorporation or that corporation is exceeding or abusing its authority

Action by shareholders: Shareholders may petition for involuntary dissolution
- abuse, waste, misconduct, deadlock, irreparable injury, abandoned purpose

Action by creditors: creditors may seek judicial dissolution if:
(1) Creditor’s claim has been reduced to judgment, execution of judgment is returned unsatisfied, and corporation is insolvent OR (2) The corporation has admitted in writing that the creditor’s claim is due and owning and corporation is insolvent

Administrative dissolution: State may bring action to administratively dissolve (i.e. failure to pay fees and penalties, failure to file an annual report, failure to maintain a registered agent)

Question 25

general procedure for fundamental change

Answer 25

(1) board action adopting resolution of fundamental change
(2) board submits proposal to shareholders w/written notice
(3) shareholder approval

May also need to deliver document to SoS

Shareholder approval: requires a majority of shares entitled to vote (not majority of those voting)

Increasing number of states require a majority of share actually voting (apply trad rule 1st)

Question 26

dissenting shareholders’ appraisal remedy

Answer 26

Appraisal rights: right of shareholder to force corporation to buy their stock for fair value

Question 27

perfecting right of appraisal

Answer 27

1. before vote, Shareholders must file w/corporation a written notice of objection and demand payment
2. Shareholder must abstain or vote against the proposed change
3. If action is approved, the corporation must notify within 10 days all shareholders who filed an intent to demand payment
4. Within set time, the shareholder must make a written demand to be bought out
5. Corporation must pay dissenters fair value of shares + accrued interest