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MEET Topics > Corporations > Flashcards

Corporations Flashcards

1
Q

Corporations

A

Legal entity separate from its owners

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2
Q

Characteristics of corp

A

Management, limited liability, transferability, continuity, personhood

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3
Q

Management

A

Centralized BoD who delegate day to day to corporate officers

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4
Q

Limited Liability

A

Only corp itself is liable

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5
Q

Transferability

A

Shareholders can freely transfer ownership interest unless prohibited

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6
Q

Continuity

A

Exist in perpetuity

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7
Q

Personhood

A

Considered people and retain certain constitutional protections

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8
Q

Articles of Incorporation Must Include

A

Name, shares including max number authorized to issue, and name and address of registered office and agent

Some states also require statement of purpose, which cannot be exceeded

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9
Q

Bylaws

A

Written rules for managing corp and provide for ordinary business conduct like elections, times for meetings, etc.; can also contain provisions for managing and regulating corp’s affairs if legal

Must be incorporated by incorporators or BoD

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10
Q

Amending bylaws

A

Shareholders can amend initial bylaws

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11
Q

Promoter

A

Pre-incorporation action that are on behalf of not yet formed corporation for capital commitments, usually by forming Ks with parties interested in becoming shareholders, and corp planning and formation

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12
Q

Promoter Liability

A

Promoter liable for Ks entered into on behalf of not-yet-formed corp and remains liable after unless (a) novation, or (b) indemnification if held liable on K after formation

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13
Q

Pre-incorp liability of corp

A

Generally, no liability based on pre-incorp Ks entered into by promoters unless corp adopts K

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14
Q

Subscription Agreement

A

One agrees to buy specified number of shares from corp at given price

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15
Q

Ultra Vires Act

A

Where corp acts outside stated purpose

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16
Q

Consequence of Ultra Vires Act

A

(A) shareholder suit to enjoin
(B) corp suit against officer or director responsible
(C) state action to dissolve corp

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17
Q

De facto corp

A

Where corp formation fails to adhere to proper formalities but carries itself as corp, may still be treated as one

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18
Q

Reqs for de facto

A

(1) corp law exists under which entity could have become legally incorporated
(2) good faith effort to comply with state’s incorporation laws, and
(3) business acted like corp

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19
Q

Corp by estoppel

A

Persons who treated business as corp are estopped from denying entity is corp, especially if to avoid liability

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20
Q

Piercing corporate veil

A

Generally, shareholders, directors, and officers are not personally liable but can be held under this doctrine in which case corp entity disregarded

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21
Q

Acts justifying piercing

A

(1) ignoring corp formalities to extent corp is not being treated as separate entity
(2) inadequate capitalization where under capitalization at time of incorporation
(3) fraud or illegality, either already exists or to prevent

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22
Q

Liability post-piercing

A

All persons composing corp may be personally liable, but only those involved in active management will be held liable

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23
Q

Corp security

A

Corps get funding through issuing securities of which there are two (1) debt, and (2) equity

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24
Q

Debt security

A

Bonds

Corp borrows funds from outside creditor and promises to repay

Holders of bonds have no ownership interest

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25
Q

Equity securities

A

Stocks

Instrument that represents investment in corp and shareholders become part owners

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26
Q

Types of shares

A

Authorized: max number that corp can issue, as in incorporation articles

Issues/outstanding: shares sold to investors

Reacquired: shares that corp buys back, reverting from issued to authorized

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27
Q

Classes of shares

A

Corps may choose to issue different classes and each can have different series within class

28
Q

Reqs for class of shares

A

Articles must authorize each class and set forth
(1) number of shares in each
(2) name or distinguishing designation
(3) describe rights, preferences, and/or limitations afforded to each class

29
Q

Varying rights in shares

A

Shares authorized by corp can have different rights, preferences, and limitations depending on class of shares which could include rights to distribution or dividends, nature of voting rights, etc.

30
Q

Distribution Rights

A

Corp can distribute assets in form of dividends, redemption of shares, or liquidation upon dissolution

This is up to board discretion, no general right to demand

31
Q

Consideration

A

Shares can be issued by corp in exchange for any tangible or intangible property or benefit to corp

32
Q

Shareholder Authority

A

Exert control through power to elect directors, amend bylaws, and approve fundamental changes
(A) directors: remove and elect
(B) bylaws: amend or repeal
(C) fundamental: must approve, including mergers, sale of assets outside ordinary business, and dissolution

33
Q

Inspection rights with proper purpose

A

Shareholders may inspect corp’s books and records for any proper purpose upon written notice

Proper purpose: if reasonably related to person’s interest as shareholder
Notice: 5 days provided to corp, stating purpose

34
Q

Inspection rights without proper purpose

A

Allowed if articles and bylaws, annual reports and meeting minutes, BoD resolutions of share classifications and corp communications

35
Q

Meetings of shareholders

A

Corp must hold annual meetings for election directors and other special matters

Notice of meeting must be sent to shareholders eligible to vote

36
Q

Special meetings by shareholders

A

May be called to conduct business requiring shareholder approval

37
Q

Shareholder voting

A

Unless articles provide otherwise, 1 share = 1 vote and quorum is required to begin a vote

If votes cast within quorum favored action then action approved

38
Q

Shareholder voting in BoD elections

A

Directors are elected by plurality

Cumulative: allowed if in articles each share can cast as many votes as BoD vacancies and multiple votes can be cast for one seat

39
Q

Proxies

A

Shareholders can vote shares via proxy IF executed in writing but generally revocable unless coupled with interest and clear statement that not revocable

40
Q

Shareholder lawsuits

A

May sue corp either directly or through derivative action to enforce corp’s rights

41
Q

Direct suit

A

Occurs where corp, its officers, or director caused harm to, or breached duty owed to, a particular shareholder and recovery is for benefit of shareholder or its class

42
Q

Derivative suit

A

Shareholder sues to enforce corp’s rights when corp has cause of action but fails to pursue

43
Q

Derivative suit requirements

A

Standing: shareholders at time of alleged wrong

Written demand: by shareholder to corp required, and then must wait 90 days before suing unless (i) corp already rejected demand, or (ii) irreparable harm

Recovery: goes to corp, shareholder may get legal costs

44
Q

Director’s response and authority

A

Corp BoD generally responsible for corp affairs and management

45
Q

BoD characteristics

A

Number of directors: based on bylaws or articles, at least one

Election: elected by shareholders at annual meeting

Removal: with or without cause unless provided for differently in articles

46
Q

Delegated authority

A

BoD does not run day-to-day of corp but rather delegates to officers and executives

47
Q

Committee

A

BoD may created, each comprised of 1+ BoD with power to oversee corp affairs but cannot make major corp decision without full BoD consent

48
Q

Duty of care

A

Directors and officers owe corp fiduciary duty of care and in determining whether duty was breached, courts apply Business Judgment Rule

49
Q

Business judgment rule

A

Courts will not second guess poor or erroneous decision made by officer/director IF decision was made
(1) in good faith
(2) with care that person in like position would reasonably believe appropriate under similar circumstances, and
(3) in manner director/officer reasonably believed to be in best interests of corp

50
Q

Liability of director/officer

A

If director/officer breaches duty of care, held personally liable for damages

Articles can limit but exceptions include (a) intentional violations of criminal law, (b) unlawful corp distributions, (c) receiving unentitled financial benefits, or (d) intentionally inflicted harm on corp or its shareholders

51
Q

Duty of loyalty

A

Directors/officers owe duty of loyalty which prohibits them from profiting at expense of corp

Arises in scenarios of conflict of interest or usurpation of corp opportunity

52
Q

Safe harbors for conflict of interest

A

Officer/director with potential conflict of interest will not be personally liable if transaction is either (a) fair to corp given circumstances existing at time, or (b) approved after material facts have been disclosed by either disinterested shareholders, or majority of disinterested BoD members

53
Q

Corporate opportunities

A

Fiduciary duties prevent officers/directors from diverting business opportunity to themselves where (a) corp would have interest or expectancy, and (b) officer/director does not give corp an opportunity to act first

54
Q

Mergers

A

Occurs when 2 or more companies combine

One company may be absorbed or new company entirely can be created

55
Q

Reqs for merger approval

A

Mergers considered fundamental corp changes and, as such, generally require each corp to get approval of by (a) board, by whatever vote authorized, and (b) shareholders, votes for exceed against

56
Q

Exception to merger approval

A

No significant change to surviving corp so no need to approve

57
Q

Effect of merger

A

Surviving corp owns all property and assumes all obligations of prior separate entities

58
Q

Short form merger

A

Where parent corp owns more than 90% stock of subsidiary, can be merged without approval of either corp’s shareholders

59
Q

Dissenters’ rights

A

Can challenge merger or demand payment for shares at fair value

Must be mutual notice to dissent and, then, if approved, corp must pay dissenters fair market value for their shares

60
Q

Dissolution

A

Termination of corp’s existence, which means corp continues to exist only to wind up and liquidate

Can be voluntary (fundamental change), administrative brought by state, or judicial via AG or shareholders

61
Q

Disposition of property

A

Where corp sells, leases, or otherwise disposes of all—or substantially all—property outside regular course of business

Considered fundamental change

62
Q

LLC

A

Entity that allows for taxation for its owners like partnership but limited liability similar to corp

63
Q

Formation of LLC

A

Certificate filed with state needing name, address of registered office, and name and address of registered agent

64
Q

LLC operating agreement

A

Government document like corp’s bylaws that govern relations between members, rights and duties of members and managers, conditions for amending operating agreement, etc.

65
Q

Presumptions of LLC

A

All members manage

Equal voting rights

Operating agreement dictates distribution

66
Q

Type of LLC management

A

Member-managed

Manager-managed

67
Q

Duties of LLC members

A

Member-managed: all members owe duties of care and loyalty to each other and LLC

Manager-managed: only managers owe duties of loyalty and care to LLC and members

All members and managers: good faith and fair dealing

MEET Topics (7 decks)

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