Corporations Flashcards
What is a promoter?
Someone who acts on behalf of a not-yet formed corporation
When is a promoter personally liable?
A promoter is liable for any contracts it entered into before the corporation was formed until there is a novation ridding them of liability
How can a corporation become liable for promoter’s action?
by expressly adopting the contract entered into or implied adoption (knows of promoter’s act and receives benefit from it)
de jure corporation and its elements?
A de jure corporation is a properly formed corporation
the elements required are: (1) incorporators (2) articles of incorporation (3) filed with secretary of state
What must the articles of incorporation include?
1) corporations name (including Inc., Corp., etc.) 2) Name and address of all incorporators 3) name of registered agent 4) address of registered office 5) number of authorized shares
de facto corporation?
one of two ways a not properly formed corp is deemed a corporation - requires (1) statute allowing formation of corporation (2) person/entity attempted to form corporation in good faith (3) took actions as corp would (4) did not know it was not a properly formed corp
corporation by estoppel
prohibits contracting parties from denying corp existence if dealt as if one existed
Legal significance of corporation
it is a separate legal person and generally shareholders are not personally liable for corp debt
Piercing the corporate veil
generally SH is not liable for corp debt, but will be to avoid fraud or unfairness in situations where (1) alter-ego, theres a failure to observe corp formalities OR (2) undercapitalization, failure to maintain adequate funds to cover foreseeable liabilities
shareholder
owner of the corporation who elects and removes board of directors
board of directors
Requires at least 1 member in corporation, elected and removed by SH, elects officers, manages the corporation
BoD meetings
required to act unless consent of all directors in writing, set in bylaws
What is required in BoD Meetings
a quorum: at least majority of all directors to take action
Voting in BoD Meetings
Proxies are not allowed; voting agreements not allowed; to pass a resolution a majority of the present voters is required
what is a proxy
a holder of someone’s vote; usually revocable unless the holder has an attached interest AND it was agreed to be irrevocable
Business Judgment Rule
Presumption that directors acted with duty of care - good faith, with reasonable care, and to the best interest interest of corporation ; a challenger has BoP to show standard wasnt met
Duty of loyalty of Directors
act in best interest of corp; refrain from (1) entering into conflicting interest transactions, (2) taking a corporate opportunity, (3) competing with corporation, (4) trading on insider info
Conflicting Interest transactions are allowed when
(1) approved by majority of disinterested directors after disclosure of material facts (2) approved by a majority of disinterested shareholder (3) transaction is fair and benefits corp
Officers
owe the same duties as directors; agents of the corp and bind the corp by their authorized activities
Indemnification of directors and officers
Never: if director or officer was held liable
Always: if director or officer was successful against any party (including corp)
Allowed: settlement, acted in good faith
Derivative action
Shareholder sues on behalf of corp to enforce an action; Corp obtains reward; shareholder must own stock and make demand to corporation
Direct action
Shareholder is suing on behalf of shareholders and the reward is for themselves; no demand required
What does a proxy require
a writing signed by record SH; only valid for 11 months; authorizes holder to vote; only allowed for Shareholder voting not directors
Right of SH to inspect corporate record?
1) make a request during business hours; (2) good faith and proper purpose; (3) 5 day written notice; (4) describe purpose with particularity (5) requested record are connected with purpose
Dividend Distributions
SH do not compel dividend payment; if dividend is declared by directors, then SH is entitled to dividend; a court can compel dividend if there’s a showing of (1) bad faith or dishonest purpose AND (2) funds were available
Fundamental corporate changes
Merger (A becomes B)
Consolidation (A & B become C)
Dissolution (A dissolves)
Sale of substantial assets
Fundamental amendments to AoI
