Corporations Flashcards
What must be filed with the GA Secretary of State to form a corporation in Georgia?
Articles of incorporation. The articles are required to have: (i) the corporate name, (ii) number of authorized shares, and (iii) the street address of the initial registered office.
What are the main steps that must occur at the organizational meeting after filing articles of incorporation?
The following must occur:
* Officers of the corporation are appointed
* The board of directors is elected (if the articles hasn’t named them yet)
* Bylaws are adopted
True or False: A director in Georgia must be a resident of Georgia to serve on the board of a corporation.
False, A director does not need to be a resident of Georgia or a shareholder of the corporation unless required by the Articles of Incorporation.
What is the general liability of shareholders in a corporation?
Shareholders are generally not personally liable for the actions of the corporation. Shareholder are subject only to limited liability for corporate acts and are only liable to the extent of their investment.
What is meant by ‘piercing the corporate veil’?
It refers to a legal action where a plaintiff seeks to hold the corporation’s shareholders personally liable for corporate acts.
List some factors courts consider when deciding to pierce the corporate veil.
Courts look at the totality of cricumstances in deciding whether to pierce the corporate veil. Whether a Plaintiff may pierce the corporate veil is a question of fact.
* Engaged in self-dealing or used corporate assets as their own
* Wrongfully dealt with a corporate creditor
* Exercised dominant control over the corporation’s actions
* Abused corporate formalities
* Undercapitalization at the time of formation (suggests that the corporation was a shell to avoid liability).
No single factor is dispositive, but in Georgia, abuse of the corporate form must be present.
What types of actions can a corporate shareholder bring against the corporation?
A shareholder can bring either a derivative action or a direct action.
In either action when it is based on a breach of fiduciary duty, the business-judgment rule may protect a director’s exercise of managerial powers.
Define a derivative action.
A derivative action is when a shareholder sues the corporation on behalf of the corporation for harm suffered by it.
In what situation is a direct action appropriate for a shareholder?
A direct suit is appropriate when the shareholder: (i) seeks to enforce shareholder rights or (ii) if the shareholder is bringing a non-shareholder action, and the recovery benefits the shareholder rather than the corporation.
What is the business-judgment rule?
It establishes a rebuttable presumption that a director’s decision-making process was done in good faith and with ordinary care.
What must a director engage in to overcome the business-judgment rule in Georgia?
The director must engage in fraud, bad faith, or an abuse of discretion. Mere negligence or carelessness is insufficient.
Who does a lawyer representing a corporation owe professional duties to?
The lawyer owes duties of loyalty and confidentiality to the corporation, not to its officers and directors.
However a lawyer may represent both the organization and individuals at the organization if no conflict of interest exists.
If an attorney is representing a corporation and has dealings with the corpation’s officers or employees, the lawyer must tell the individual whenever the lawyer knows or should know that the organization’s interest and the individual’s interests may be adverse.
Generally, if one attorney in a firm cannot represent a client due to a conflict of interest, then other attorneys in the firm are also conflicted out.
What is an LLC?
A legally recognized business entity that enjoys pass-through tax advantages of a partnership and limited liability of a corporation.
In an LLC, who is typically not liable for the LLC’s obligations? Also, what are some other benefits to an LLC?
A member of an LLC is generally not liable for the LLC’s obligations.
There is flexible management in the entity.
Unless the articles of incorporation or a written operating agreement provides otherwise, management of the business and affairs of an LLC is vested in its members.
Alternatively, an LLC may provide for centralized management of the LLC by one or more managers who need not be members of the LLC.
What is the primary purpose of a corporation?
To engage in any lawful business unless a more limited purpose is set forth in the articles of incorporation.
Usually subject to tax as a C corporation, which is a separate taxable entity from its shareholders, causing the corporation to face double taxation.
What is a professional corporation? What is it comprised of?
A corporation with a purpose that is statutorily limited to the rendering of a professional service.
At least one member of the BOD and the president of the professional corporation must be licensed in the relevant profession. A shareholder must be a licensed member of the applicable profession and may transfer her shares only to another licensed member of the profession.
What must be filed to form a professional corporation?
Articles of Incorporation must be filed with the Secretary of State. This must include basic information of:
*The Corporation’s Name
*Number of Authorized Shares
*Contact Information
*The Purpose of the corporation is to practice the profession named in the articles
*That the corporation elects to be governed by the statutory rules for professional corporations
What is a partnership?
An association of two or more persons to carry on a for-profit business as co-owners.
True or False: In Georgia, a partner is jointly and severally liable for all debts, obligations, and liabilities of the partnership.
True
What is a limited partnership?
A partnership formed by two or more persons that has at least one general partner and one limited partner.
A general partner is personally liable to third parties for the obligations of the limited partnership.
Except as provided in the partnership agreement, a general partner also is liable to the partnership and the other partners.
What liability does a general partner have in a limited partnership?
A general partner is personally liable to third parties for the obligations of the limited partnership.
