Corporations

Question 1

Shareholders

Answer 1

Conferring some type of benefit (usually $) in exchange for ownership in a corporation

Question 2

Board of directors

Answer 2

1) Has full management/control over the corporation

2) Delegates daily operations to the officers

3) Can appoint/remove officers at any time

Question 3

Articles of incorporations requirements

Answer 3

1) Name of corp

2) MAX # of shares the corp can issue

3) Name and address of BOD

4) Purpose

Filed w/ secretary of state

Question 4

Amending articles of incorporation

Answer 4

Need a majority vote from both Shareholders & BOD

BOD may amend w/o shareholder approval as long as the change is minor

Question 5

Corporate bylaws

Answer 5

Written rules of conduct that must be initially adopted by the BOD

Question 6

Bylaws include

Answer 6

Ordinary business conduct of the corporation

Question 7

Amending/repealing bylaws

Answer 7

May be amended by shareholders

BOD may amend/repeal UNLESS the shareholders state otherwise

Question 8

When are shareholders liable?

Answer 8

When you can pierce the veil

Question 9

Piercing the corporate veil

Answer 9

1) Alter ego
2) Undercapitalized
3) Corporate Formalities
4) Fraud/Illegality

Question 10

Alter ego

Answer 10

Must be distinct. Shouldn’t merge

Question 11

Corporate formalities

Answer 11

Evidence of a legitimate corporation

Question 12

Undercapitalized

Answer 12

Must put in significant $$ to show that you’re serious

Question 13

Common Stock

Answer 13

A security interest representing ownership in a corporation

1) Has voting rights
2) Has electoral rights

Lowest priority

Question 14

Preferred Stock

Answer 14

First to receive payments/dividends before any other class

Doesn’t always have voting rights

Question 15

Authorized shares

Answer 15

Max # of shares that a corporation is legally permitted to issue under its articles of incorporation

Question 16

Outstanding shares

Answer 16

Total number of shares issued by a corporation and held by shareholders

Each share is entitled to 1 vote unless otherwise provided (regardless of class)

Question 17

Treasury stock

Answer 17

Shares issued and re-acquired

Not counted in votes

Question 18

Shares within the same class

Answer 18

Have identical rights/preferences unless divided into separate series

Question 19

Preemptive rights

Answer 19

Rights of a current shareholder to purchase additional shares in a corporation before outsiders can do so

Corporation has to opt in in their articles of incorporation

Question 20

Preemptive rights dont exist for

Answer 20

1) Preferred shares that can be converted to common stock

2) Shares sold for consideration other than cash

3) Shares issued by majority shareholder

Question 21

Liability for directors/ officers

Answer 21

Duty of Care & Loyalty

Question 22

Duty of care

Answer 22

Must act w/ reasonable care when making business decisions regardless of the outcome

1) Act on an informed basis
2) Ensure decisions are in corp’s best interest
3) Disclose material info to board

Question 23

Duty of loyalty

Answer 23

No conflicting interest transactions

1) Can’t be a party to transaction
2) Can’t benefit from transaction

Question 24

Business judgment rule

Answer 24

Presumption that the board is always acting

1) In good faith
2) On an informed basis
3) Honest belief that it was in the corp’s best interest

*Must rebut

Question 25

Safe harbor

Answer 25

Defense if you can show

1) Disinterested shareholder/BOD approval
2) Deemed fair to the corporation

Question 26

Notice of meetings

Answer 26

Must
1) State purpose
2) Provide 10-60 day notice

Question 27

Quorum

Answer 27

Majority of shares entitled to vote must be present