Corporations Flashcards
1
Q
Formation of a corporation requires
A
(1) people - incorporators
(2) paper - articles of incorporation
(3) act - delivery of notarized articles to Secretary of State
2
Q
An incorporator forms a corporation by
A
executing the articles and delivers them to the Secretary of State.
3
Q
An incorporator can be a person or an ________.
A
entity. Like another corporation.
4
Q
Articles of incorporation are a contract between the corporation and _________ and the corporation and the ___________.
A
shareholders; state.
5
Q
The information that the articles of incorporation are required to have is
A
(1) the corporate name, including one of the words corporation, company, incorporation, or limited
(2) name and address of each incorporator
(3) name and address of each INITIAL director
(4) name of registered AGENT and registered OFFICE
6
Q
If there is no statement of duration in the articles of incorporation, then the corporation has a _________ duration.
A
perpetual.
7
Q
A corporation generally must have a statement of ___________.
A
purpose.
8
Q
A general purpose is okay and in some states a general purpose is even __________.
A
presumed and requires no statement at all. An example of a general purpose statement is “engage in all lawful activity after first obtaining necessary state agency approval.
9
Q
A corporation performing an activity outside its statement of purpose is called
A
ultra vires.
10
Q
At common law, any ultra vires contract could be _______, but today
A
voided; ultra vires contracts are valid.
11
Q
Shareholders can seek an ______ for ultra vires activity.
A
injunction.
12
Q
Managers responsible for ultra vires activity are _____ to the corporation for ___________.
A
liable; ultra vires losses.
13
Q
Authorized stock is
A
the maximum number of shares the corporation can sell.
14
Q
Issued stock is the
A
number of shares the corporation actually sells.
15
Q
Outstanding stock is the
A
shares that have been issued and not reacquired.
16
Q
With respect to stock, the articles must include
A
(1) authorized stock
(2) number of shares per class
(3) information on voting rights and preferences of each class
17
Q
When incorporators deliver notarized articles to the Secretary of State, pay fees, and the Sec. State ______ the articles for filing, this gives rise to a _________ corporation.
A
accepts; de jure.
18
Q
After forming the corporation, the board of directors holds an ________ meeting where it selects _______ and adopts __________________.
A
organizational; officers; bylaws and conducts any other appropriate business.
19
Q
The law of the state of incorporation governs the __________ of the corporation.
A
internal affairs.
20
Q
_-corps do not pay income tax at the corporate level.
A
S (as opposed to C-corps, which pay income tax on profits and shareholders are taxed on distributions: “double taxation”)
21
Q
To be an S-corp, a corporation must
A
(1) have no more than 100 shareholders
(2) all of whom are human and U.S. Citizens or residents
(3) and have only one class of stock that is NOT publicly traded
22
Q
Directors, officers, and shareholders ______ generally liable for the conduct of the corporation.
A
are not.
23
Q
A “de facto” corporation arises when
A
(1) there is a relevant incorporation statute (this is ALWAYS true)
(2) the parties made a good faith, colorable attempt to comply with said statute
(3) the parties make some exercise of corporate privileges (i.e. they act like they are a corporation)
24
Q
If the doctrine of “de facto” corporation applies, the entity is treated like a corporation for _______ except in an action ________.
A
all purposes; by the state.
25
A corporation by estoppel exists if
you treat a business like a corporation then you may be estopped from denying that it is a corporation.
**This goes both ways, i.e. you can't get out of contracts you formed with an entity you treated as a corporation, nor can an improperly-formed corporation get out of liability by saying it was not properly formed.
26
Corporation by estoppel only applies in ________ cases.
contract.
27
De facto corporation and corporation by estoppel have been _______ in many states.
abolished. Throw that in the essay answer.
28
Bylaws ______ required to form a corporation.
are not.
29
By laws _______ filed with the state.
are not.
30
The initial bylaws are adopted by the _________ at the _______ meeting.
board of directors; organizational (first meeting).
31
_______ can amend or repeal the bylaws of a corporation.
Shareholders (and the BoD in some states).
32
If bylaws conflict with the articles, the ______ control.
articles.
The articles are a formal contract with the state, so we give them priority.
33
A _____ is a person acting on behalf of a not-yet-formed corporation.
promoter.
34
A corporation is liable on pre-incorporation contracts when it
adopts the contract (expressly or impliedly if the corporation accepts a benefit under the K).
The promoter is still liable.
35
A promoter is personally liable on pre-incorporation contracts until there has been
a novation (between the promoter, now-formed corporation, and the other party to the contract).
36
A "foreign" corporation is any corporation formed
in another state.
37
Foreign corporations that transact business in a state must
(1) qualify; and
| (2) pay prescribed fees.
38
"Transacting business" means the _______ course of ______ business, it does not mean ___________.
regular; INTRAstate; occasional or sporadic activity or simply owning property there.
39
A foreign corporation "qualifies" by getting a certificate of ______ from the Sec. State by providing its
(1) articles; and
| (2) proving good standing in its home state.
40
If a foreign corporation transacts business without qualifying it
(1) faces a civil fine; and
| 2) cannot sue in the state (but it can be sued and defend
41
An "issuance" occurs when
a corporation sells its own stock.
42
A "subscription" is a
written offer to buy stock from a corporation.
43
Pre-incorporation subscriptions are _____ for ______ months unless ______.
irrevocable; six; the subscription says otherwise or all "subscribers" allow you to revoke.
44
Post-incorporation subscriptions are _______ until ________.
revocable; accepted by the corporation (i.e. the BoD accepts the offer).
45
Voting rights: The general rule is that the right to vote lies in the ______ shareholder as of the _____ date.
record; record.
46
The record shareholder is the person shown as the ______ in the corporate _______.
owner; records.
47
The record date is a voter eligibility _________.
cutoff.
E.g. Meeting for August 7, record date of July 8. S sells B her stock on July 25. Who votes? S votes.
48
The three exceptions to the general shareholder voting rule are
(1) corporation re-acquires stock before the record date
(2) death of a shareholder
(3) proxies
49
If the corporation reacquires share of stock before the record date, then _____ votes the shares.
nobody (this is treasury stock).
50
If a shareholder dies after the record date, ______ votes the shares.
S's executor.
51
A "proxy" is a _______ signed by the ______ shareholder to the _______ of the corporation authorizing __________.
writing (fax or email is okay); record; secretary; another to vote the shares.
52
Proxies are valid for ______ months unless it says otherwise.
eleven.
53
A proxy can be revoked by ________ or by __________.
a writing; attending and voting.
54
A proxy ________ be revoked even if it says it is ________.
can always be; irrevocable.
55
A proxy is only irrevocable if a proxy both says it is ________ and it is couple with ________.
irrevocable; an interest.
E.g. S gives B an option and gives B a proxy to vote the shares.
56
The requirements of voting trusts are
(1) written trust agreement, controlling how the shares will be voted
(2) copy to the corporation
(3) transfer legal title to the voting trustee
(4) original shareholders device trust certificates and retain all shareholder rights except for voting
57
The requirements for the voting or pooling agreement are
(1) shareholders can enter into voting agreements
(2) signed writing
(3) split of authority: are voting agreements enforceable?
58
Shareholders vote either in a _________ or _______ written consent by holders of _____ voting shares.
meeting; unanimous; all.
59
_____ meetings are required where ______ are elected.
Annual; directors.
60
Special meetings can be called by
(1) the president
(2) the board
(3) the holders of at least 10 percent of the voting share
(4) anyone else authorized in the bylaws
61
Shareholders cannot call a meeting to remove _______.
officers. SHs can't remove officers.
62
_______ must be given to every shareholder entitled to vote between ____ and ____ days before the meeting
Written notice; 10; 60.
63
A notice of a shareholder meeting is required to contain
(1) time and place of the meeting
| (2) the purpose of the meeting
64
If proper notice is not given to all shareholders, then any action taken at the meeting is ____ unless those not sent notice __________.
void; waive the notice defect either expressly or impliedly (attend the meeting w/o objecting)
65
Shareholders generally vote on these things
(1) elect directors
(2) remove directors
(3) fundamental corporate changes
(4) anything else that the board asks for a SH vote on
66
Every time shareholders vote, there must be a _____ represented at the meeting.
quorum.
67
Determining a quorum at the shareholder meeting focuses on the number of _______ represented, not the number of ______ and generally requires a ______ of outstanding ________.
shares; shareholders; majority; shares.
68
A shareholder quorum _____ be lost of people leave the meeting.
cannot (contrast a director's quorum which CAN be lost).
69
To elect a director, a ______ of the vote is required.
plurality.
70
To remove a director, traditionally a ______ of the shares ________ is required.
majority; entitled to vote
71
Cumulative voting arises when voting on ____________.
elections of directors.
72
Under cumulative voting, the total number of votes is the number of ______ times the number of ________.
shares; directors to be elected.
**This replaces three separate elections in which you'd only get the same number of votes, but with cumulative voting there is one big at large election and your multiplied votes can be spent on one person.
73
Generally, in most states if the articles are silent, cumulative voting is
not allowed.
74
Stock transfer restrictions are valid if they are
reasonable.
75
Stock transfer restrictions are "reasonable" if they are
not an undue restrain on alienation.
76
If a stock transfer restriction is valid, it can be enforced against the transferee (buyer) if
(1) the restriction is conspicuously noted on the stock certificate; or
(2) the transferee had actual knowledge of the restriction
77
_________ can demand access to inspect the books and records of the corporation on _________ notice.
Any shareholder; 5-days written.
* Directors have unfettered access to records.
* *If corp refuses, SH can sue for a court order and if she wins get attorneys' fees.
78
In order to properly demand access to the corporate records, a shareholder must state a proper ______.
purpose related to the interest as a SH.
79
A shareholder only has a right to a dividend or other distribution only when the _______ declares it.
board.
**SH has to show abuse of discretion, super hard, like, the corp would have to make lots of money and board would have to pay themselves lots of bonuses.
80
Dividend math:
(1) take total dividend amount
(2) subtract the number of preferred shares times the $ preference and if the preferred shares are CUMULATIVE, then times number of years since dividend
(3) divide remaining amount evenly across common stock
E.g. $400k dividend, 100k common stock, 20k cumulative $2 preferred stock, no dividend in 4 years:
81
An earned surplus is all _____ minus all _______ mins _______ previously paid.
earnings; losses; distributions.
82
Stated capital _____ be used for distributions.
cannot.
83
Stated capital arises when a corporation _____ stock and is the _____ value of the stock issuance if there is one.
issues; par. If no "par", then the board allocates between par and capital surplus at its discretion.
E.g. A 10k shares of $2 par stock for $50k, the stated capital is the par value of $20k, the capital surplus is the remaining $30k.
84
Capital surplus ____ be used for distributions if _________.
can; the shareholders are informed.
85
Under the modern view, a corporation cannot make a distribution if
(1) it is insolvent; or
| (2) the distribution would render the corporation insolvent.
86
Insolvent means either:
(1) the corporation is unable to pay its debts as they come due; or
(2) totally assets are less than total liabilities.
87
Directors are jointly and severally liable for _____ distributions, but remember the directors' ______.
improper; good faith defense.
88
Shareholders are personally liable for improper distributions only if
they knew the distribution was improper when they received it.
89
Under ______ liability, a creditor can sue the ______ of a merger or consolidation.
successor; survivor.
90
A transfer of substantially all of the assets not in the ordinary course of business or share exchange ______ a fundamental corporate change for the _______ corporation only.
is; selling. Right of appraisal only for the selling company's shareholders. No delivery of docs to Sec. State.
**Rule of thumb is at least 75% of assets.
91
There is no ______ liability for a transfer of substantially all assets because the ________ still exists
successor; selling company.
**Exception if the buyer is a "mere continuation" of the seller.
92
A shareholder can petition a court for involuntary dissolution of a corporation because of
(1) director abuse (waste, misconduct)
(2) director deadlock that harms the corp
(3) SHs have failed at consecutive annual meetings to fill a board vacancy.
93
If a court does not grant dissolution, it can still order a _______ of the objecting shareholder, which is likely in a _______.
buyout; close corp.
94
Dissolution of a corp starts the liquidation process which consists of
(1) gathering all assets
(2) converting to cash
(3) paying creditors
(4) distributing remainder to SHs, pro-rata by share unless there is a liquidation preference**
**Must be stated in the articles, otherwise no preference exists.
95
What forms of consideration may the corporation receive when it issues stock
1. Money (cash or check)
2. tangible of intangible property, and
3. services already performed for the corporation (yes, even though that's past consideration)
*property and past services valued by BoD, which is conclusive as long as they acted in good faith
96
These two forms of consideration for a stock purchase are permitted in some states but not allowed in others
1. promissory notes
2. future services
*in states where banned, using these results in "unpaid stock" so it's all treated as water
97
C Corp is issuing 10,000 shares of $3 par stock. It must receive at least
$30,000.
| can get more but not less than par value
98
If stock is "no par" the minimum issue price is set by the ____________
Board of Directors
99
Treasury stock is stock that that the company issued and then
reacquired. It can then sell for whatever issuance price it wants
100
C Corp issues 10,000 shares of $3 par to X for $22,000. The $8,000 gap is known as
water
101
The corporation can recover "water" from
directors IF they knowingly authorized issuance, and the buyer (buyer has no defense; he is charged with notice for the par value).
(note: Third parties aren't liable if they didn't know about the water)
102
Pre-emptive right is the right of an existing SH of common stock to
maintain her ownership percentage by buying stock whenever there is a new issuance of stock FOR MONEY (cash or check)
103
S owns 1,000 shares of C Corp. There are 5,000 shares outstanding. C Corp is planning to issue an additional 3,000 shares. If S has preemptive rights, S has the right to
buy 600 shares.
104
If the articles are silent, do shareholders have preeemptive rights?
Split of authority.
105
Initial directors are usually named in the articles, and successive Ds are elected by ________ at _________
shareholders at the annual meeting
106
Shareholders can remove a director on the basis of
cause or no cause (unless staggered board, which can be removed only for cause)
107
Typically, a vacant BoD position is selected by the _______, but if the SHs created the vacancy by removing a D, the replacement must be chosen by the _________
BoD or SHs; the SHs
108
Board of Directors can only act in these two ways
1. unanimous agreement in writing
| 2. At a meeting (conference call counts)
109
For the purpose of pre-emptive rights, an issuance of treasury stock (is/is not) a "new issuance"
Split of authority! Depends on the state.
110
If the BoD act in any way other than unanimous agreement in writing or at a meeting, the act is
VOID unless ratified by a valid act.
111
An individual director (is/is not) an agent of the corporation
is not
112
Officers (are/are not) agents of the corporation
are
113
Although regular meetings don't require notice to be given, special meetings require
notice of the time and place. Failure to give notice VOIDS what happened at meeting, unless Ds not notified waive the notice defect.
114
Directors (can/cannot) give proxies or enter voting agreements
cannot. Each owes non-delegable duties to the corporation
115
If a quorum is present at a board meeting, passing a resolution requires this many votes
a majority vote of those present
| also note that a quorum can be lost if people leave
116
The board can delegate to a committee of one or more directors, but a committee cannot
1. Declare dividends
2. Set D compensation
3. Fill Board vacancy
