Corporations

Question 1

What is a promoter?

Answer 1

Someone who acts on behalf of a not-yet formed corporation

Question 2

When is a promoter personally liable?

Answer 2

A promoter is liable for any contracts it entered into before the corporation was formed until there is a novation ridding them of liability

Question 3

How can a corporation become liable for promoter’s action?

Answer 3

by expressly adopting the contract entered into or implied adoption (knows of promoter’s act and receives benefit from it)

Question 4

de jure corporation and its elements?

Answer 4

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

Question 5

What must the articles of incorporation include?

Answer 5

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

Question 6

de facto corporation?

Answer 6

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

Question 7

corporation by estoppel

Answer 7

prohibits contracting parties from denying corp existence if dealt as if one existed

Question 8

Legal significance of corporation

Answer 8

it is a separate legal person and generally shareholders are not personally liable for corp debt

Question 9

Piercing the corporate veil

Answer 9

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

Question 10

shareholder

Answer 10

owner of the corporation who elects and removes board of directors

Question 11

board of directors

Answer 11

Requires at least 1 member in corporation, elected and removed by SH, elects officers, manages the corporation

Question 12

BoD meetings

Answer 12

required to act unless consent of all directors in writing, set in bylaws

Question 13

What is required in BoD Meetings

Answer 13

a quorum: at least majority of all directors to take action

Question 14

Voting in BoD Meetings

Answer 14

Proxies are not allowed; voting agreements not allowed; to pass a resolution a majority of the present voters is required

Question 15

what is a proxy

Answer 15

a holder of someone’s vote; usually revocable unless the holder has an attached interest AND it was agreed to be irrevocable

Question 16

Business Judgment Rule

Answer 16

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

Question 17

Duty of loyalty of Directors

Answer 17

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

Question 18

Conflicting Interest transactions are allowed when

Answer 18

(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

Question 19

Officers

Answer 19

owe the same duties as directors; agents of the corp and bind the corp by their authorized activities

Question 20

Indemnification of directors and officers

Answer 20

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

Question 21

Derivative action

Answer 21

Shareholder sues on behalf of corp to enforce an action; Corp obtains reward; shareholder must own stock and make demand to corporation

Question 22

Direct action

Answer 22

Shareholder is suing on behalf of shareholders and the reward is for themselves; no demand required

Question 23

What does a proxy require

Answer 23

a writing signed by record SH; only valid for 11 months; authorizes holder to vote; only allowed for Shareholder voting not directors

Question 24

Right of SH to inspect corporate record?

Answer 24

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

Question 25

Dividend Distributions

Answer 25

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

Question 26

Fundamental corporate changes

Answer 26

Merger (A becomes B)
Consolidation (A & B become C)
Dissolution (A dissolves)
Sale of substantial assets
Fundamental amendments to AoI