Corporations Flashcards
What are “promoters”?
person’s acting o behalf of corporation not yet formed
The CORPORATION becomes liable on a promoter’s pre-incorporation contract when the corporation adopts the contract by either:
1) Express BoD resolution OR;
2) Implied adoption, knowledge of the contract AND acceptance of its benefits
The promoter remains liable on a pre-incorporation contract until there has been a NOVATION, what is a novation?
an agreement between the promoter, the corporation and the other contracting party that the corporation will replace the promoter under the contract
Who is liable if the promoter enters a contract, and the corporation is never formed?
Promoter alone is liable personally on the contract
Who is liable if the promoter enters a pre-incoporation contract, and the coporation merely adopts the contract?
Both, the corporation and the promoter are liable on this contract, at the election of the third party.
Promoters are __________ of each other and the corporation. Therefore, propmoters cannot make a ______ ______ on their dealings with the corporation
fiduciaries; secret profit (i.e. sale to corporation of promoter’s own property at profit without disclosure to the corp)
If promoter acquires property _____ becoming a promoter and sells to corporation at a profit; profit recoverable only if sold for
BEFORE; Fair Market Value
- cannot sell AFTER acquired property
What are subscribers? and what is the VA revocability rule?
Persons or entities who make written offers to buy stock from a corporation not yet formed. Such offers are irrevokable for 6 mos under VA law.
What are the absolute corporation formation requirements?
1) Incorporators must sign and file Articles of Incorporation with State Corporation Commision (SCC)
2) articles must include:
* Authorized shares (max# of shares of each class of stock the corp is authorized to issue).
* Preferences (priorities and rights assigned to each class of stock)
* Agent ( identify person and registered office - this is corps official legal rep)
* Incorporators (names and addresses)
* Name of corporation (must contain some indication of corporate status)
3) BY laws need not be in artcile, but corp MUST adopt By-Law. - BOARD has power to adopt and amend, unless articles give this power to shareholders
What is the liability rule for shareholders of corporations?
Generally SH are not liable for corporate debts and obligations, only liable for the price of stock.
EXCEPT: court will pierce the corporate veil in order to render SH liable to 3rd party victim to avoid fraud or unfairness
When will the court pierce the corporate veil?
- Render shareholders liable to 3rd party victims to avoid fraud or unfairness:
- alter ego ( a controlling SH will fail to observe sufficient separate corporate formalities) OR
- Undercapitalization (Corp has insufficient money to cover forseeable liabilities) - look for companies that are involved in inherently dangerous activities but have no liability insurance
Courts are generally more williong to pierce the corporate veil for a _________ than for a ____________
tort victim; contract claimant
Foreign corporations transacting business in VA must qualify. How do they do so?
Qualify by getting a certificate of authority from SCC that includes (same info required for AoI A-PAIN)
*if you fail to qualify you can’t initiate a lawsuit in VA
When corporations issue stock, they must receive:
at least Par Value (minimum issuance price)
Can a corporation acquire property with par value stock?
Yes, any valid consideration (including property) can be received if the BoD values the consideration, in good faith, at at least par value.
What is No Part stock?
Stock with no minimum issuance price; any valid consideration can be received, as long as deemed adequate by the board. (i.e. treasury stock)
What are the consequences of issuing par stock for less than par value?
1) Directors are liable personally for authorizing below par issuance
2) Buyers of below par stock are also liable (SH are liable up to par value of stock)
* SHs must elect who to recover from, can’t recover from both)
Preemptive right is the right of___________ to maintain her percentage of ownership by buying stock whenever there is a ________ of stock for ____
an existing shareholder; new issuance; cash
*IN VA preemptive rights to not exist unless expressly granted in articles
What is the liability of directors to their own corporation?
1) Duty to manage the company
2) Business Judgment Rule
3) Fiduciaries——> duty of care (prudence unless limited by articles) + loyalty (no unfair benefits unless disclosed + independent ratification)
What are Shareholder rights for each of the following:
1) Derivative Suits:
2) Voting:
3) Proxies:
1) Derivative Suits: must have contemporaneous ownership at time claim arose + adequately represent corps interests + make a demand
2) Voting: Only record date shareholders can vote
3) Proxies: ok. Revokable unless, labeled irrevokable + coupled with an interest
What are Shareholder rights for each of the following:
4) Quorum:
5) Vote:
6) Cumulative Voting:
4) Quorum: (majority of all shares represented, not shareholders)
5) Vote: Cast in favor must exceed votes cast against
6) Cumulative Voting: Shares times # of slots = # of available votes
What are Shareholder rights for each of the following:
7) Dividends:
8) Eliminating Formalities:
9) LLC:
10) Virginia Business Trust:
7) Dividends: priority of distribution (preferred=first, common=last, particular=twice; cumulative= add on)
8) Eliminating Formalities: Non-public corporation + unanimous agreement of SH + valid for 10 years = no piercing (even if you fail to observe formalities) + S corp status
9) LLC: Limited liability + Limited life + limited liquidity + limited tax
10) Virginia Business Trust: filed perpetual limited liability trust
What is the business judgment rule?
a presumption that the directors manage the corporation in good faith and in the best interest of the coporation and it’s shareholders. *D’s not liable for innocent mistakes of business judgment
What are the statutory requirements for Directors in VA?
1) must have board with at least 1 member
2) SHs have power to elect directors
3) SHs can remove directors with or w/o cause
4) Meetings: meetings required unless ALL D’s consent in writing - notice (meeting can be set in bylaws) - proxies not allowed - quorum (must have majority of all Ds to do business unless diff % required by the by-laws but never less than 1/3—to pass a resolution all that is required is majority vote of those present
When is permissive Indemnification of an officer or director allowed by a corporation?
Director of officer has such settled a lawsuit with their own corporation.
If D lost lawsuit, cannot idemnify,
What are the proxy formation requirements?
1) writing, 2) authorized by record shareholder 3) directed to secretary of corporation 4) authorizing another to vote the shares, and 5) valid for only 11 months
What is the difference Straight voting vs. Cumulative voting.
Straight voting: you get the number of votes - to your nymber of owned shares for each individual slot
CV: can pool all your available votes for one slot (CV must be granted in the articles in VA)
Corporation______award dividends or annual distributions to SHs if it is insolvent, or if the dividend would render it insolvent.
CANNOT
What are the procedural steps for making a fundamental (not ministerial) corporate change?
1) board resolutin to change
2) special notice (25-60 days advance)
3) more than 2/3 of all shares
4) dissenters rights
5) notice to state (file to SCC)
In VA, What are the dissenters right?
How does a shareholder perfect those rights?
What happens if the SH and the corporation cannot agree on fair value?
1) right of appraisal (right of a SH to force the corp to buy her shares at fair value)
2) a) before SH vote: notice in writing of your intent to object and demand payment b) at the vote: do not vote for change: c) after the vote must make timely demand in writing to be brought out
3) In Va, court has power to appoint expert to appraise value of shares. This appraisal becomes binding.
Who may determine whether to grant permissive indemnity?
1) Majority of D’s could approve indemnity
2) committee of at least 2 independant directors
3) Majority of shares held by individual shareholders can vote OR
4) Special lawyer opinion can rescind it
Corporations are responsible for all debts and obligations incurred on their behalf, generally rendering____________________ not liable for the corporation’s debts.
individual corporate shareholders
VA C corps have a ______ tax rate than VA S corps and,____________
lower; are subject to double taxation
*pays taxes on its profits when earned, and then shareholders later pay taxes on the distributions
Ordinarily, a corporation may not conduct the business of ___________ unless it specially registers with the state.
insurance;
Corporations generally may borrow and lend money, issue secured or unsecured bonds or obligations, and guarantee liabilities.
A corporation in which the sole shareholder uses the assets of the corporation to pay her personal bills, leaving the corporation unable to pay its own creditors, is an example of?
“alter ego” and subject to piercing the veil.
Also occurs when
….the corporation fails to keep separate books, hold meetings, issue stock, etc. However, the mere fact that the shareholders were sloppy in administering corporate affairs itself is not enough to justify piercing
Which of the following shares may NOT be voted in any manner?
A Shares owned by joint tenants.
B Shares called for redemption.
C
Shares owned by a partnership.
D
Shares that have been pledged.
shares called for redemption