Corporations Flashcards
Shareholders
Conferring some type of benefit (usually $) in exchange for ownership in a corporation
Board of directors
1) Has full management/control over the corporation
2) Delegates daily operations to the officers
3) Can appoint/remove officers at any time
Articles of incorporations requirements
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
Amending articles of incorporation
Need a majority vote from both Shareholders & BOD
BOD may amend w/o shareholder approval as long as the change is minor
Corporate bylaws
Written rules of conduct that must be initially adopted by the BOD
Bylaws include
Ordinary business conduct of the corporation
Amending/repealing bylaws
May be amended by shareholders
BOD may amend/repeal UNLESS the shareholders state otherwise
When are shareholders liable?
When you can pierce the veil
Piercing the corporate veil
1) Alter ego
2) Undercapitalized
3) Corporate Formalities
4) Fraud/Illegality
Alter ego
Must be distinct. Shouldn’t merge
Corporate formalities
Evidence of a legitimate corporation
Undercapitalized
Must put in significant $$ to show that you’re serious
Common Stock
A security interest representing ownership in a corporation
1) Has voting rights
2) Has electoral rights
Lowest priority
Preferred Stock
First to receive payments/dividends before any other class
Doesn’t always have voting rights
Authorized shares
Max # of shares that a corporation is legally permitted to issue under its articles of incorporation
Outstanding shares
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)
Treasury stock
Shares issued and re-acquired
Not counted in votes
Shares within the same class
Have identical rights/preferences unless divided into separate series
Preemptive rights
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
Preemptive rights dont exist for
1) Preferred shares that can be converted to common stock
2) Shares sold for consideration other than cash
3) Shares issued by majority shareholder
Liability for directors/ officers
Duty of Care & Loyalty
Duty of care
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
Duty of loyalty
No conflicting interest transactions
1) Can’t be a party to transaction
2) Can’t benefit from transaction
Business judgment rule
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
