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Corporations Flashcards

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1
Q

All TX corporations are governed by…

A

the Texas Business Organizations Code (TBOC)NOTE: this should be the first sentence in any BA essay you write

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2
Q

Corporation Formation Requirements

A
  1. People: organizers2. Paper: Certificate of Formation3. Act: organizers sign certificate, deliver it to TX SOS, and pay the fee.
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3
Q

Information in Certificate of Formation

A
  1. Corporate name2. Names and addresses: organizers, directors, corporate agent3. Number of initial directors4. Capital Structure: (a) authorized stock); (b) number of shares per class; (c) info on par value, voting rights, and preferences of each class
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4
Q

Corporate Name Requirements

A
  1. Must have “corporation,” “company,” or “incorporated”2. Cannot mislead the public about its purposeNOTE: some businesses (like banks) must be formed under a special purpose statute
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5
Q

Reserving Corporate Name

A

Before forming a corporation, you can reserve an appropriate corporate name with the SOS for 120 days.

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6
Q

DBA Requirements

A

If the corporation does business under a name other than that in the certificate, it must file an assumed name certificate with the SOS and county clerk in the county of the registered office or principal office.NOTE: the company cannot sue until it does, but it can be sued

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7
Q

Corporate Statement of Purpose

A

The certificate MUST include a statement of purpose, but it can be general (e.g., “to engage in all lawful activity”)

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8
Q

Definition: Ultra Vires Activity

A

Activity beyond the scope of the certificate

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9
Q

Consequences of Ultra Vires Activity

A
  1. Ultra vires contracts are valid2. SHs can seek injunction3. Responsible managers are liable to corporation for ultra vires activities
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10
Q

Definition: Authorized Stock

A

Maximum number of shares the corporation can sell

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11
Q

Definition: Issued Stock

A

Shares the corporation actually sells

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12
Q

Definition: Outstanding Stock

A

Shares the corporation has issued and not reacquired

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13
Q

Corporate existence begins at…

A

The time the SOS files the certificate

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14
Q

Organizational Meeting

A

BOD selects officers, adopts bylaws, and transacts other company business.3 days’ notice is required.

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15
Q

Internal Affairs Doctrine

A

Internal affairs are governed by the state of incorporation

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16
Q

Definition: Double Taxation

A

Income tax is paid by the entity and by the shareholders on their dividends

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17
Q

A corporation can avoid double taxation by…

A

Electing S Corp. status

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18
Q

S Corp Requirements

A

100 or fewer SHs, all of whom are human US citizens or residents; only 1 class of stock; not publicly traded

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19
Q

If the proprietors fail to establish a de jure corporation…

A

They will be personally liable for what the business does because it’s just a partnership.EXCEPTION: corporation by estoppel or de facto corporation principles apply

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20
Q

Definition: De Jure Corporation

A

A corporation validly formed under the law

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21
Q

Requirements: De Facto Corporation

A
  1. Relevant incorporation statute (TBOC)2. Parties made a good faith, colorable attempt to comply with it3. Some exercise of corporate privileges (acting like a corporation; this is ALWAYS at issue)
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22
Q

What happens if DFC applies?

A

The business is treated as a corporation for ALL purposes EXCEPT in an action by the state

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23
Q

What is the status of DFC and CBE in Texas?

A

These doctrines MAY be abolished, as they are in other states; however, the statutes of these doctrines is not entirely clear.

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24
Q

Corporation by Estoppel

A

One who treats a business as a corporation may be estopped from denying that it is a corporationNOTE: generally only applies to k cases

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25
Q

Must a corporation have bylaws?

A

Yes, unless it is a CHC.

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26
Q

Who adopts the initial bylaws?

A

The BOD at the organizational meeting

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27
Q

Who can repeal or amend the bylaws or adopt new ones?

A

The BOD or SHs

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28
Q

If the bylaws conflict with the certificate of formation, which takes precedence?

A

The certificate, except bylaws can set the number of directors

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29
Q

Definition: Promoter

A

A person acting on behalf of a corporation not yet formed.She may contract with a 3P on behalf of a corporation that is not yet formed.

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30
Q

Liability of a CORPORATION on Pre-Incorporation Contracts

A

A corporation is NOT liable on pre-incorporation contracts unless it ADOPTS the contract

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31
Q

Definition: Adoption

A
  1. Express: BOD expressly adopts a contract2. Implied: Corporation accepts the benefit of a contract
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32
Q

Liability of a PROMOTER on Pre-Incorporation Contracts

A

Unless the contract clearly says otherwise, the promoter is liable on pre-incorporation contracts until there is a NOVATION.NOTE: ADOPTION is NOT enough; it just makes the corporation liable, too

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33
Q

Definition: Novation (for pre-incorporation ks)

A

An agreement of the promoter, the corporation, and the other contracting party that the corporation replaces the promoter under the k

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34
Q

Foreign Corporations

A

Foreign corporations transacting business in TX must qualify and pay prescribed fees

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35
Q

Definition: “Transacting Business”

A

Intrastate transactions on a recurring basis.I.e., regular course of business in TX; not just sporadic activity

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36
Q

How does a foreign corporation “qualify” in TX?

A

Gets a certificate of authority from the TX SOS. Must give basic information and prove good standing in home state.

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37
Q

What happens if a foreign corp. transacts business in TX without qualifying?

A

Civil fine and cannot sue in TX on a claim arising from business in TX (but still can be sued and defend)

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38
Q

Definition: Issuance

A

A corporation sells its own stock; way for a corporation to raise capital

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39
Q

Definition: Subscription

A

Written, signed offer to buy stock from a corporation

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40
Q

Revocation of Pre-Incorporation Subscriptions

A

Pre-incorporation subscriptions are irrevocable for 6 months unless it says otherwise or all subscribers agree to let you revoke

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41
Q

Revocation of Post-Incorporation Subscriptions

A

Post-incorporation subscriptions are revocable until accepted by the corporation. I.e., after the BOD accepts the offer and the company notifies the subscriber in writing.

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42
Q

At what point does a subscriber whose subscription is accepted become a SH?

A

When she pays for the stock

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43
Q

What form of consideration must the corporation receives when it issues stock?

A

Any tangible or intangible benefit to the corporation.E.g., money, discharge of debt, property, services already rendered, promissory notes

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44
Q

Definition: Par Value

A

The minimum issuance price

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45
Q

Definition: Treasury Stock

A

Stock that was previously issued and has been reacquired by a corporation.It is authorized and issued, but NOT outstanding.NOTE: treasury stock need not be sold at par value

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46
Q

Is the valuation the BOD puts on consideration received for issuance of property conclusive?

A

Yes, absent fraud

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47
Q

Definition: Watered Stock

A

Issuing par stock for less than par value

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48
Q

Is a director liable for watered stock?

A

Yes, if they knowingly authorized the issuance

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49
Q

Is the purchaser liable for watered stock?

A

Yes, always. There is no defense. Purchaser is always liable for the amount of “water.”

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50
Q

Is a third party transferee of watered stock liable for the water?

A

No, if the 3P did not know about it.

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51
Q

Definition: Pre-emptive Right

A

The right of an existing SH of common stock to maintain her percentage of ownership by buying stock whenever there is a new issuance of stock FOR MONEY (i.e., cash or cash equivalent)

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52
Q

Are there preemptive rights if the COF is silent?

A

No. Must be in the certificate.

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53
Q

There are no preemptive rights if the issuance is within _______ of formation of the corporation

A

6 months (unless the COF says otherwise)

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54
Q

How many directors are required?

A

One or more adult natural persons.Initially, the number is set in the COF. After that, the number is set in the COF or bylaws.

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55
Q

When are directors elected?

A

SHs elect directors at the annual meeting

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56
Q

Removal of Directors

A

SHs may vote to remove a director by a vote of a majority of the shares entitled to vote.Can remove with or without cause.

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57
Q

If there is a vacancy on the board, who selects the person to serve the remainder of the term?

A

Generally the BOD or the SHs

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58
Q

The two ways the BOD can take a valid act are:

A
  1. Unanimous written consent to do something2. A meeting that satisfies quorum and voting requirementsIf these are not fulfilled, an act is void unless ratified by a valid act.
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59
Q

Can directors speak for or bind the corporation?

A

No. Directors are not agents of the corporation.Officers, however, are.

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60
Q

Notice of Board Meetings

A

Not required for regular meetings, but is required for special meetings.Failure to give proper notice voids whatever was done at the meeting unless the defect is waived by the person not notified.

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61
Q

Can directors give proxies for how they will vote as directors?

A

No. That is void against PP.

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62
Q

Can directors enter into voting agreements?

A

No. That is void against PP.

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63
Q

Quorum of Directors

A

Majority of all directors

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64
Q

Voting Requirement of Direcors

A

Passing a resolution requires a majority vote of those who are present

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65
Q

Role of the BOD

A

Manages the business.Sets policy, supervises officers, declares distributions, decides when the corporation should issue stock, recommends fundamental corporate changes to shareholders, etc.EXCEPTIONS:1. CHCs2. Committee is elected to manage

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66
Q

Definition: Director’s Duty of Care Standard

A

A director owes the corporation a duty of care. She must act in good faith and exercise ordinary care and prudence. She must do what a prudent person would do in similar circumstances.Directors are fiduciaries.

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67
Q

Breach of Director’s Duty of Care via Nonfeasance

A

I.e., lazy director.π must show that the breach caused a loss to the corporation, which is difficult to show.

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68
Q

Breach of Director’s Duty of Care via Malfeasance

A

I.e., the board does something that hurts the corporation (causation is clear)NOT liable if the director meets the BJR standard.

69
Q

Definition: Business Judgment Rule

A

A court will not second-guess a business decision if it was made in good faith, was informed, and had a rational basis. I.e., the director is not a guarantor of success.

70
Q

Definition: Director’s Duty of Loyalty Standard

A

A director owes the corporation a duty of loyalty. She must act in good faith and with a reasonable belief that her act is in the corporation’s best interest.BJR does NOT apply

71
Q

Definition: Interested Director Transaction

A

There is any deal between the corporation and one of its directors (or the director’s close relative or another business of which the director is a manager or has a financial interest)

72
Q

Interested Director Transactions will be set aside UNLESS…

A

The director shows:1. The deal was fair to the corporation when approved OR2. Her interest and the material facts were disclosed or known and the deal was approved in good faith by either the SHs or a majority of the disinterested directors.

73
Q

Competing Ventures

A

Cannot compete without approval of disinterested majority of directors

74
Q

Usurping a Corporate Opportunity

A

Director cannot usurp a corporate opportunity.I.e., the director cannot take it until he:1. Tells the board and 2. Waits for the board to reject the opporunity

75
Q

Definition: Corporate Opportunity

A

Anything the director has reason to know the company would be interested in

76
Q

Sarbanes-Oxley

A
  1. Prohibits loans to executives in large, publicly traded corporations.2. Requires the board of a PHC to establish an audit committee and oversee work of registered public accounting firm.3. CEO and CFO must certify the accuracy and completeness of financial reports.
77
Q

Which directors are liable for improper actions?

A

A director is presumed to have concurred with the BOD action UNLESS her dissent or abstention is noted in writing in the corporate records.This is done by one of the following:1. Having it put in the minutes2. Sending a note to the corporate secretary at the meeting3. Sending a registered letter to the corporate secretary immediately after the meetingNOTE: an oral dissent, by itself, is not enough

78
Q

Defenses to liability for BOD action

A
  1. Not liable if absent from the meeting2. Properly dissented/abstained3. Good faith reliance on information represented as correct by an officer or provided by a competent professional, by an employee, or by a committee of which the director relying was not a member
79
Q

Officers

A

Officers are agents of the corporation. They can bind the corporation by acts within their authority.NOTE: watch out for a cross-over with agency law hereMust have a president and secretary, but can have others as well.

80
Q

Inherent Authority of President

A

May have inherent authority to bind the corporation to a contract entered in the ordinary course of business NOTE: the president has authority to convey corporate real property ONLY if the BOD gives her such authority

81
Q

Selection and Removal of Officers

A

Officers are selected and removed by the BOD, which also sets officer compensation.NOTE: generally SHs do not hire/fire officers

82
Q

When is the corporation FORBIDDEN to reimburse a D/O?

A

If the D/O is held liable for willful or intentional misconduct in performing a duty to the corporation.VERY narrow.

83
Q

When is the corporation REQUIRED to reimburse a D/O?

A

The D/O wins a judgment on the entire case (merits or technicality ok)

84
Q

When is the corporation PERMITTED to reimburse a D/O?

A

If D/O can show that she acted in good faith and with the reasonable belief that her actions were in the company’s best interests (DOL standard).This is determined by (a) majority vote of disinterested directors or of a disinterested committee or of disinterested shares OR (b) independent legal counselNOTE: if the D/O was held liable to the corporation or received an improper personal benefit, she can ONLY get expenses and attorneys’ fees, NOT the judgment.

85
Q

What liability damages can the COF eliminate for a D/O?

A

Can eliminate D/O liability for damages, but never for willful or intentional conduct.

86
Q

When can the company advance litigation expenses for a D/O?

A

D/O gives an affidavit of her good faith belief that she has met the DOL standard AND a written undertaking to repay expenses if it is determined that she did not.

87
Q

Do SHs get to manage the corporation?

A

No. The BOD does.But, in a CHC, management can be set up differently.

88
Q

Definition: Closely Held Corporation (CHC)

A

Few SHs + stock not publicly traded

89
Q

How do you form a CHC?

A

Certificate must say the corporation is a CHC

90
Q

How is the management structure in a CHC changed?

A

A shareholders’ agreement must authorize the change (e.g., abolishing the board, making management much less formal than an ordinary corporation).SH agreement can be created by: certificate or bylaws and approved by ALL of the SHs OR written agreement signed by ALL the SHs.

91
Q

Does failure of a stock certificate to not CHC status affect CHC status?

A

No.

92
Q

If the corporation fails to deliver a copy of a SH agreement to each SH, does that affect its validity?

A

No.

93
Q

Definition: Statement of Operation

A

Document submitted by a CHC to the SOS noting that the company is operating as a CHC. Makes the status public record.Becomes binding on all SHs and transferees, even if the transferee does not have knowledge of the agreement.

94
Q

Duties of SHs to each other in CHC

A

In a TX CHC, SHs do not owe each other fiduciary duties as a matter of law. However, a court may find a fiduciary duty on the facts of a given case.

95
Q

When may a court PCV?

A

SHs have abused the privilege of incorporating and limited liability would be unfair.Purpose: prevent fraud or achieve equity

96
Q

Alter Ego Theory

A

May PCV if SH treats corporate assets as his ownNOTE: Not available in PCV cases for mere failure to observe corporate formalities

97
Q

Are SHs liable for acts or debts of the corporation?

A

General Rule: NoEXCEPTION: it would be proper to PCV

98
Q

Undercapitalization Theory

A

May MCB if the corporation is undercapitalized.E.g., dangerous business, no insurance, very small investment

99
Q

PCV for Contract Claim

A

Cannot PCV for a contract claim based on fraud unless the SH made the corporation commit ACTUAL FRAUD for her own personal benefit

100
Q

Definition: Shareholder Derivative Suit (SHDS)

A

In a derivative suit, a SHS is suing to enforce the corporation’s claim, not her personal claim. The corporation could have brought the suit itself.The corporation gets the money from the judgment, and the SH attorneys’ fees from the corporation if they prevail.

101
Q

If π in a SHDS fails, what happens?

A

π cannot recover attorneys’ fees and costs. π may be liable to ∆ he sued for ∆s attorneys’ fees if the court finds that SH sued without reasonable cause or for an improper purpose.

102
Q

Requirements for bringing a SHDS

A
  1. Stock ownership – one must have owned stock when the claim arose or have gotten it by “operation of law” from someone who did (e.g., inheritance and divorce)2. Must also fairly and adequately represent the corporation’s interests – includes owning stock throughout the litigation3. Must also make a written demand on directors that the corporation bring suit
103
Q

Demand Requirement in SHDS

A

SH cannot file a SHDs until 90 days after demand unless demand is rejected before that or waiting 90 days would cause irreparable damages to the corporation.Demand is not excused in TX.The demand must set forth the nature of the claim with particularity.

104
Q

Joining of Corporation in SHDS

A

The corporation must be joined as a DEFENDANT (even though suing on the corporation’s behalf) because it did not independently join as a π

105
Q

Can the parties dismiss/settle a SHDS?

A

Only with court approval.If the proposed settlement or dismissal may substantially affect SHs, the court may require notice to the SHs.

106
Q

What is the basis of a corporation’s motion to dismiss a SHDS?

A

Not in the corporation’s best interests.Corporation may move to dismissed based upon determination by independent and disinterested directors.

107
Q

Court’s standard for ruling on motion to dismiss a SHDS

A

Court MUST dismiss if corporation’s determination of dismissal was made in good faith by independent and disinterested directors

108
Q

SHDS in CHC

A

In a CHC of 35 or fewer SHs, the court might treat a derivative suit as a direct action so the various requirements do not have to be met.Recovery would go to π, not the corporation.

109
Q

SH Voting: Who votes?

A

You vote if you are the record SH as of the record dateEXCEPTIONS:1. Corporation reacquires stock from SHs before the record date and is the record owner of the treasury stock (does not vote because it’s not outstanding)2. SH dies3. SH appoints a proxy

110
Q

Definition: Record SH

A

The person shown as the owner in the corporate records

111
Q

Definition: Record Date

A

voter eligibility cut-off set no more than 60 days before the meeting

112
Q

Definition: Proxy

A

A proxy is a:1. Writing (fax and email OK)2. Signed by the record SH3. Directed to the secretary of the corporation4. Authorizing another to vote the sharesNOTE: agency principles applyNOTE: They expire after 11 months unless it says otherwise

113
Q

Irrevocable Proxy

A

A proxy is irrevocable if:1. It says it’s irrevocable; and2. It’s coupled with an interest

114
Q

Requirements for Voting Trust

A
  1. Written trust agreement controlling how the shares will be voted2. File copy with the corporation3. Transfer legal title of shares to voting trustee4. Original SHs receive trust certificates and retain all SH rights other than voting
115
Q

Voting Agreement Requirements

A

Must be in writing and a copy sent to the corporationVAs are specifically enforceableNOTE: SHs cannot agree on what they will do once they become directors

116
Q

Two ways SHs can take a valid corporate act:

A
  1. Unanimous consent in writing and signed or by electronic transmission of holders of all voting shares; or2. A meeting that satisifies the quorum and voting requirements
117
Q

Annual SH Meeting

A

Must be held within 13 months of the last one.Elect directors at this meeting

118
Q

Special SH Meeting

A

Can be called by: the board, the president, the holders of at least 10% of the shares entitled to vote, or anyone else permitted in the COF.NOTE: cannot remove/elect officers, but can remove/elect directors

119
Q

SH Meeting Notice Requirement

A

Must give written notice to every SH entitled to vote, for every meeting (annual or special), between 10 and 60 days before the meeting (21-60 days if the meeting is to consider a fundamental change).Notice is given personally by mail (or if SH consents, email)Contents of the Notice: must state when, where, and why (nothing else can be done at the meeting than what is expressed in the purpose)

120
Q

Consequence of failure to give proper notice for SH meeting

A

Any action taken at the meeting is void unless those not sent notice (or those with defective notice) waive the notice defect.Express waiver: in writing anytimeImplied waiver: attend meeting without objection

121
Q

SHs get to vote on the following things…

A
  1. To elect directors2. To remove directors3. Fundamental corporate changes
122
Q

Quorum of SHs

A

General Rule: quorum requires a majority of outstanding sharesFocuses on number of shares rather than number of SHsQuorum cannot be broken if a SH leaves (unlike directors)

123
Q

What vote is required to elect a director?

A

Plurality (the person who gets more votes for that seat on the board than anyone else)

124
Q

What vote is required to remove a director?

A

Majority of shares entitled to vote

125
Q

What vote is required to approve a fundamental corporate change?

A

2/3 of shares entitled to vote

126
Q

What vote is required for general matters in a SH meeting?

A

Majority of the shares that vote on the issue

127
Q

Definition: Cumulative Voting

A

Voting device to give small SHs a better chance of electing someone to the board.Multiple the number of shares times the number of directors to be electedNOTE: must be included in the COF.NOTE: at least one SH must give written notice to the corporate secretary of her intent to cumulate no later than one day before the meeting; if this occurs, all SHs can use cumulative voting.

128
Q

Where can stock transfer restrictions be set up?

A

COF, bylaws, SH agreement

129
Q

Stock transfer restrictions are okay if…

A

Not an undue restraint on alienation

130
Q

Is a stock transfer restriction enforceable against a transferee?

A

Even if a STR is valid, it cannot be invoked against the transferee unless:1. It is conspicuously noted on the stock certificate; or2. The transferee had actual knowledge of the restriction

131
Q

Which SHs are eligible to inspect and copy the books and records of the corporation?

A

Any SH who has owned stock for at least 6 months OR owns at least 5% of outstanding shares

132
Q

What is the procedure for a SH to inspect and copy the books and records of the corporation?

A

Written demand stating a proper purpose.Proper Purpose: related to your interest as a SH

133
Q

If the corporation does not allow an eligible SH to inspect and copy the books and records of a corporation…

A

The SH can get a court order and recover expenses and attorneys’ fees. If there is litigation, the corporation has the burden of showing that the SH’s purpose was improper.

134
Q

Definition: Distribution

A

Payment by the corporation to SHs.Can be a dividend, buyback, or redemption

135
Q

Definition: Redemption

A

Forced sale of stock to corporation at price set in certificate

136
Q

When do SHs have a right to a distribution?

A

When the BOD declares it

137
Q

Definition: Cumulative Stock

A

For the years in which no dividend was paid, the cumulative holders’ dividend is adding up.

138
Q

Which funds can be used for any distribution?

A

SurplusNOT stated capital!

139
Q

Formula: Surplus

A

Assets - liabilities - stated capital

140
Q

Formula: Stated Capital

A

Par Value of Stock x number of shares issued

141
Q

A corporation CANNOT make a distribution if…

A

The company is insolvent, the distribution would render it insolvent, or the distribution would exceed surplus

142
Q

Definition: Insolvent

A

Unable to pay debts as they become due

143
Q

Liability for Unlawful Distribution

A

Directors are JSL to the corporation for an unlawful distribution to the extent it was impermissible.NOTE: defense of good faith reliance may be available

144
Q

Can a director held liable for an unlawful distribution seek compensation from others?

A

Yes, from other directors who approved it and SHs who knew it was improper when they got it.

145
Q

Procedure for Fundamental Corporate Change

A
  1. Board takes an action adopting a resolution of a fundamental corporate change2. Board must submit proposal to SHs with written notice3. Fundamental change must be approved by SHs (2/3 of shares entitled to vote)4. Document delivered to the SOS for filing
146
Q

Definition: Dissenting SH Right of Appraisal

A

Right to force the corporation to buy your stock are fair valueRight of appraisal is the exclusive remedy for a SH who does not like the fundamental change, absent fraud

147
Q

What actions by a corporation tricker a SH’s right of appraisal?

A

Merger; sale of shares in a share exchange; transfer of substantially all assets; conversionNOTE: the right is not available if the stock is listed on a national stock exchange or market or has 2000+ SHs (PHC –> can sell stock on the market)

148
Q

Action by SH to perfect the right of appraisal

A
  1. Before SH vote, file with the corporation written notice of objection and of intent to demand payment2. Abstain or vote against the proposed change3. After the vote, within 20 days of notification by the corporation, make written demand to be bought out
149
Q

Requirements: Amendment to the COF

A
  1. BOD action; and2. SH approval (2/3)If approved, deliver the amended COF to SOS for filing.
150
Q

Requirements: Mergers

A
  1. BOD action (of both corporations); and2. SH approval (always required of the DISAPPEARING company)NOTE: SHs of the surviving company do not vote unless their company and rights are substantially changedIf approved, deliver certificate of merger to SOS
151
Q

Definition: Short Form Merger

A

90% or more owned subsidiary is merged into a parent corporationNOTE: no SH approval needed

152
Q

Effect of Merger

A

Surviving company succeeds to all rights and liabilities of the disappearing company (“successor liability”)

153
Q

Definition: Conversion

A

Corporation can convert to another form of business organization.Required board action and approval by 2/3 of the shares entitled to vote.Deliver certificate of conversion to SOS for filing.NOTE: dissenting SHs can demand appraisal rights

154
Q

Requirements: Transfer of All/Substantially All of Assets Not In the Ordinary Course of Business or Stock Exchange

A
  1. BOD action (both corporations); and2. Approval by the selling corporations SHs (2/3)NOTE: these are fundamental corporate changes ONLY for the sellerNOTE: no successor liability; selling corporation still exists, so creditors can still sue it
155
Q

A transfer will NOT be “of substantially all assets” if…

A

The corporation continues to engage in the same business after the transfer

156
Q

Requirements: Voluntary Termination

A
  1. Written consent of all shareholders or2. BOD action and approval by 2/3 of shares entitled to vote.3. Send notice of intent to wind up to creditors.4. Follow liquidation processNOTE: A court can revoke termination if it was fraudulent.NOTE: A corporation may revoke its voluntary termination any time before its corporate existence ceases.
157
Q

Involuntary Termination

A
  1. TX AG can institute a proceeding for involuntary termination and winding up2. Creditors can seek immediate termination based on irreparable harm to unsecured creditors3. Creditors can seek appointment of a receiver because the corporation is insolvent and the creditor either has an unsatisfied judgment or the company admits in writing the amount is due4. SH can seek appointment of a receiver (NOT TERMINATION)5. Administrative Termination
158
Q

A SH can seek the appointment of a receiver for…

A
  1. Insolvency2. waste of assets3. director or deadlock causing irreparable harm to the company4. SHs deadlocked and have failed at 2 annual meetings to fill a vacant board position5. illegal, opporessive, or fraudulent acts by directorsNOTE: remember this option when breach of DOC/DOL cases arise
159
Q

How long does a receiver serve?

A

12 monthsIf at the end of 12 months things are not fixed, the court can order a termination.

160
Q

Definition: Administrative Termination

A

The Texas SOS may issue a certificate of termination for the corporation’s failure to pay fees or failure to maintain a registered agent or file required reportsMust give at least 90 days’ notice

161
Q

Administrative Termination & D/O Liability

A

Directors and officers are personally liable for debts incurred after termination and before resinstatement

162
Q

Does termination end the existence of the corporation?

A

No, it starts the liquidation process.

163
Q

Steps in the Liquidation Process

A
  1. Gather all assets2. Convert to cash3. Pay creditors4. Distribute remainder to SHs, pro-rata by share unless there is a liquidation preferences
164
Q

Who manages the winding up process?

A

The BOD, unless the court decides to supervise

165
Q

What is the effect of the SOS filing the certificate of termination?

A

The corporate existence ends

166
Q

How late can claims against the corporation that arose before termination be asserted?

A

Within 3 years after termination

167
Q

A corporation may not engage in the following combinations of business…

A

(i) the business of raising cattle and owning land therefor, and the business of operating stockyards and slaughtering, refrigerating, canning, curing, or packing meat; and
(ii) the petroleum oil producing business and the oil pipeline business.

168
Q

Notice of Board Meeting Requirements

A

Notice of regular board meetings is unnecessary unless required by the bylaws, but notice of special meetings is required.

Nevertheless, a director’s attendance at a meeting constitutes waiver of notice unless the director attends with the express purpose of objecting to the meeting.

Bar Exam (26 decks)

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