corporations

Question 1

formation of corporation

Answer 1

file and sign Articles of Incorporation with the Secretary of State. Articles must include certain things.

Question 2

articles of incorporation

Answer 2

must include name of corp and be filed within state; name and address of local agent for service of process; name and addresses of incorporators and number of authorized shares in each class of stock.

Corporate existence begins when articles are filed unless articles establish later date.

Question 3

de jure corporation

Answer 3

when all statutory requirements for a corporation are met. Corp is liable for corp’s activities

SHs are shielded from personal liability.

Question 4

de facto corporation

Answer 4

when owner makes good faith effort to comply w/incorporation requirements and operates w/o knowing requirements aren’t met.

Owner is not personally liable for obligations incurred in corp’s name.

Shields SHs from personal liability

Question 5

corp by estoppel

Answer 5

person who deals w corp as if they’re proper corp is estopped from denying their existence and can’t seek personal liability of owner

Question 6

dividends

Answer 6

The power to authorize a dividend rests with the board of directors (“BOD”).

Question 7

special meetings

Answer 7

require notice, must state purpose, proper time and place of meeting.

Question 8

general meetings

Answer 8

no notice required, generally stated in Articles.

SHs meet annually, directors meet quarterly

Question 9

derivative suit

Answer 9

SH can sue on behalf of Corp:
(1) SH has standing to represent corp,
(2) SH makes demand and waits at least 90 days before commencing action and
(3) recovery goes to Corp, SH can seek reimbursement

Question 10

close corp

Answer 10

corp that’s not publicly traded, has few SHs and less corp formalities or governance

Question 11

piercing corporate veil

Answer 11

can pierce corp veil and hold SH personally liable

• Undercapitalization at time of formation
• disregard of corp formalities
• Misconducts – fraud, self-dealing, siphoning of corp funds, using corp assets as SHs own assets

Question 12

removal of directors

Answer 12

• SH can remove with or w/o cause before term expires
• Cts can remove for fraud/abuse of authority
• Directors can’t remove other directors

Question 13

ultra vires

Answer 13

acts that go beyond directors/officers’ powers. Corporate actions that go beyond what’s permitted in Articles

• Can be brought by (1) SHs (2) Corp or (3) State

Question 14

duty not to usurp a corporate opportunity

Answer 14

when director learns of opportunity corp may be interested in, director has duty to disclose opportunity to corp and wait for board to reject

Question 15

duty of loyalty

Answer 15

Directors owe corp duty of loyalty.

Must act in good faith and best interest of corp w/o regard to personal gain

Question 16

Duty of loyalty - related persons

Answer 16

Corps dealing w/related persons are subject to COI and may be protected by safe harbor rules

Question 17

self-dealing

Answer 17

director who engages in conflict of interest transaction w/his own corp has violated duty of loyalty unless transaction is protected by safe harbor rules

Question 18

safe harbor rules

Answer 18

(1) Disclosure of material facts & Majority of disinterested SHs approve (2) Disclosure & Majority of BODs approve or
(3) Fairness of transaction to corp at commencement

Question 19

duty of care

Answer 19

Owe a duty of care to act as a reasonable person w/care and skills.

Must act as a prudent person in similar circumstances. Must use any special skills

Question 20

business judgement rule

Answer 20

Directors Not liable for loss arising from good faith or informed business judgements arrived to w/reasonable care.

Question 21

proxies

Answer 21

SHs can vote by proxy executed in writing. Valid for 11 months unless provided otherwise.

Revocable by SH, irrevocable if coupled w/interest or given as security

Question 22

voting agreement

Answer 22

SHs may enter into written + signed agreement providing for manner in which they’ll vote their shares. Must be signed by all SHs

Question 23

promoters

Answer 23

persons acting on behalf of corp not yet formed

• Corp generally not liable unless adopted or there’s a novation releasing promoter from liability

Question 24

federal securities act

Answer 24

• Protects against fraudulent practices in connection w/sale or purchase of stocks.
• Rule 15(b) action, P must show (1) purchase of sale or security (2) in reliance on (3) D’s fraudulent or deceptive conduct (4) relating to a material fact (5) with scienter (6) involving use of interstate commerce and (7) damages

Question 25

valid board action

Answer 25

For a BODs’ acts at a meeting to be valid, a quorum of directors must be present at the meeting.

Question 26

quorum

Answer 26

A majority of all directors in office constitutes a quorum, unless a higher or lower number is required by the articles of incorporation or bylaws.

To be counted for quorum purposes, a director must be present at the time that the vote is taken.

Question 27

right of inspection

Answer 27

SH has a right to inspect and copy corporate records upon 5 days’ written notice.

Although a SH may generally inspect the main records of the corporation, such as the bylaws and articles and the minutes of SH meetings, the SH must demonstrate a proper purpose before inspecting certain records.

Question 28

SH Direct action

Answer 28

In a direct action to enforce a SH’s rights, the SH sues the corp for breach of a fiduciary duty owed to the SH by a director or an officer.

Any recovery goes to the SH.

Question 29

novation

Answer 29

A novation is a substitute agreement between all relevant parties to extinguish the original contract, thereby releasing the original obligor of liability.

Question 30

express adoption

Answer 30

Corp may expressly or impliedly adopt a contract after it has been validly formed.

Once adopted, the corporation becomes liable on the contract.

However, adoption does not relieve the promoter of liability absent a novation.

Express adoption occurs when the corporation has expressly assumed the liability whereas implied adoption may occur when the corporation accepts the benefits of the transaction.

Question 31

corporate vicarious liability

Answer 31

An employer corporation can be held liable for the tortious conduct of an employee that is within the scope of employment.