Corporations

Question 1

Extraordinary Sale of Assets

Answer 1

• • Sale of “substantially all” of its assets (safe harbor - keeping at least 25% of assets or business activities generate 25% of income from continuing operations is not substantially all)
• • Sale needs board proposal and recommendation and approval by majority of all shareholders entitled to vote (not just of those present)
• • Effect is generally purchase doesn’t assume liabilities of selling corp except where it does so by agreement (or if the sole purpose of the sale is to fraudulently escape liability)

Question 2

Dissenters’ Rights

Answer 2

Shareholder is entitled to dissent and obtain “fair value” for his shares in these transactions

1) merger, if shareholder approval is required and shareholder is entitled to vote
2) share exchange, if shareholder’s corp is acquired and he is entitled to vote on the exchange
3) a sale of substantially all assets, if shareholder is entitled to vote on the sale
4) any corporate action requiring shareholder vote if the articles, bylaws, or a director’s resolution so requires

Question 3

Factors in Piercing the Corporate Veil

Answer 3

(FLUU COOP)

1) Fraudulent representation by corporation shareholders or directors
2) Lack of corporate records
3) Undercapitalization
4) Use of corporate form to promote fraud, injustice, or illegal activities
5) Commingling of assets and affairs
6) failure to Observe required corporate formalities
7) Other shareholder acts or conduct ignoring, controlling, or manipulating the corporate form;
8) Payment by the corporation of individual obligations

Question 4

The “Waterfall” when corporation winds up

Answer 4

Claimants are paid off in order:

1) Creditors of the corporation; then
2) Preferred Shareholders (in order of priority); then
3) Common Shareholders, who get to share whatever is left

Question 5

Key elements defining a class of shares

Answer 5

1) right to vote
2) right to dividends; and
3) right to preferences upon liquidation

Question 6

Required notice for shareholder meetings

Answer 6

no less than 10 days and no more than 60 days
Bylaws (or board if bylaws silent) fix the “record” date which closes the record of which shareholders are entitled to vote
Shareholder list must be prepared and available for shareholder inspection from 5 days before meeting through the meeting

Question 7

Shareholder right to inspect records

Answer 7

Shareholders generally have the right to inspect and copy the articles, bylaws, board resolutions regarding the rights and limitations of shares, and minutes of shareholder meetings if:

1) demand is made in good faith for a proper purpose
2) description with particularity the records to be inspected and the purpose for inspection
3) records are “directly connected” with shareholder’s purpose

Question 8

When may a court pierce the corporate veil?

Answer 8

When the corp. form has been so “ignored, controlled, or manipulated” that

1) the corp. was merely an instrumentality of another and
2) allowing such misuse of the corporate form would constitute fraud or promote injustice

Question 9

Duty of Care

Answer 9

Director shall, based on facts then known to him, act:

1. In good faith
2. With the car of an ordinarily prident person in like position would exercise under similar circumstances, and
3. In a manner the director reasonably believes to be in the best interest of the corporation