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Themis > Corporations > Flashcards

Corporations Flashcards

1
Q

Are shareholders personally liable for the debts of the corporation?

A

No, except the court may pierce the veil to avoid fraud or unfairness

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3
Q

What is the process for invoking dissenters’ rights?

A

The shareholder must send written notice to the corporation prior to the vote of her intent to dissent
At the meeting, the shareholder must abstain or vote no, or
The shareholder must make prompt written demand for that market value after the action has been approved

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5
Q

What is the dissolution of a corporation?

A

The existence of a corporation is extinguished either voluntarily by the shareholders and directors or involuntarily by disgruntled parties

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7
Q

What are three factors in deciding whether to pierce the veil?

A

Alter ego: failing to observe any corporate formalities between the person and the corporation
Undercapitalization: failure to maintain funds sufficient to cover forseeable liabilities
Fraud: parties engaged and fraud or fraud like behavior

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8
Q

What is required for a proxy?

A

In writing
Signed by the shareholder as of the record date
Sent to the secretary of the corporation
State that it authorizes another to vote the shareholders shares
Cannot be valid for more than 11 months unless otherwise specified

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9
Q

What is the business judgment rule?

A

In the absence of fraud, illegality, or self-dealing, courts will not disturb good faith business decisions

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10
Q

What are treasury shares of stock?

A

Stocks previously issued to shareholders but then reacquired by the corporation

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12
Q

What is cumulative voting?

A

Shareholders are given the number of votes that is equal to the number of shares they have multiplied by the number of director positions being voted on

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14
Q

When do the controlling shareholders owe a duty to fellow shareholders or the corporation?

A

The controlling shareholder owes a duty to minority shareholders if it sells stock to an outsider or looter, or the shareholder transacts with the corporation to his own benefit

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15
Q

What is required for a special meeting?

A

A special meeting may be called by some percentage of the board, the president, or a specified group of shareholders
Adequate notice must be given to the shareholders no fewer than 10 days but no more than 70 days before

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17
Q

When is indemnification required?

A

When the director or officer wins the case

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18
Q

What is a LLC?

A

An LLC combines the limited liability of corporations the tax treatment of a partnership

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20
Q

What is required for a shareholder vote to be effective?

A

If the votes cast in favor of the proposal exceed the votes cast against the proposal

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22
Q

What is the approval required for fundamental changes to a corporation?

A

Both the shareholders and directors must approve fundamental changes

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23
Q

What is the difference between a merger and a consolidation?

A

Consolidation is the combination of two or more corporations in which neither of the two corporations survive in a new entity is created

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24
Q

What is par value?

A

The minimum value that a corporation must sell its shares of stock

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25
Q

How can a board member avoid liability for decision with what you direct or disagreed?

A

Entering to dissent in the minutes of the meeting
File written dissent before the meeting is adjourned
Provide written dissent by certified or registered mail to the corporation’s secretary immediately following the adjournment of a meeting

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26
Q

What are dissenters’ rights?

A

If a shareholder does not wish to participate in a duly authorized merger, asset sale, share exchange, or amendment of the articles, the shareholders are entitled to their shares purchased from them by the corporation at a fair value determined by the court

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27
Q

What is true about promoters?

A

They are responsible for finding investors who are willing to invest in the corporation before incorporation
They are personally liable for any contracts entered into before the corporation exists

29
Q

What are preemptive rights?

A

The right to acquire stock to maintain the percentage of ownership anytime new shares are issued
Shareholders do not have preemptive rights unless negotiated

30
Q

When do Board of Directors not have a right to issue dividends?

A

If the corporation is insolvent or by issuing the dividend the corporation would become insolvent

31
Q

What are participating preferred shares of stock?

A

Shares that allow a shareholder to collect preferred shared and then participate with common shares

32
Q

What are cumulative preferred shares?

A

Shares that allow a stockholder to collect for years when no dividend was paid

33
Q

What is the record date?

A

It is used to determine which shareholders are eligible to vote
It must be no fewer than 10 days before the meeting and no more than 70 days before the meeting

34
Q

What are authorized shares of stock?

A

The maximum number of shares that the director of the corporation can sell

35
Q

What is the duty of loyalty?

A

The director must act in a manner that he reasonably believes is in the best interest of the corporation. Self-dealing and usurpation of corporate opportunities of violations of the duty of loyalty
An exception to self-dealing is the safe harbor rule

36
Q

Who are the directors of a corporation?

A

They are elected by shareholders and responsible for the major corporate decisions

39
Q

When is indemnification prohibited?

A

When the director or officer is liable for receiving an improper benefit from the corporation or otherwise loses a lawsuit

40
Q

What is an S Corporation?

A

And S corporation is a corporation for state corporate law purposes, but it may only be taxed once
It is limited in the number of shareholders they may have

45
Q

When may directors be removed for cause only?

A

If there is a staggered board and the articles provide for for cause removal

49
Q

What is required for standing in derivative lawsuits?

A

The plaintiff has to have standing, which requires 1) contemporaneous stock ownership, 2) stock ownership at the time of harm, and 3) earlier demand that the Board of Directors bring in the lawsuit

51
Q

What is necessary for a vote to be effective?

A

A quorum- majority of the corporation’s outstanding shares

53
Q

What is required for the board to avoid a meeting and approve a proposal?

A

The board agreed by unanimous written consent to do so

54
Q

What are exceptions to the fact that a promoter is personally liable for contracts entered into pre-incorporation?

A

Novation, when the corporation and other party to the contract agreed to substitute the corporation for the promoter in the contract
Adoption, when a corporation adopts the contact expressly or by using the benefits of the contract

55
Q

What is the safe harbor rule?

A

The interested director discloses all materials facts to the Board of Directors and received approval by a majority of disinterested Board of Directors
The director discloses all material facts to shareholders and receives approval by a majority of disinterested shareholder votes
The transaction is fair to the corporation at the time of the deal

56
Q

How does a director usurp a corporate opportunity?

A

If the opportunity is a corporate opportunity the director must presented to the corporation first. If the corporation declines, the director can except the opportunity for himself

57
Q

What are the three components of an agency relationship?

A

Assent benefit and control

58
Q

Will is shareholder who is uninvolved with the daily operations of the company be held liable as a result of veil piercing?

A

No

59
Q

What is required for a 10b-5 action?

A

Plaintiff purchased or sold security
Transaction involved interstate commerce
Defendant engaged in fraudulent conduct
Conduct related to material information
Defendant acted with scienter
Plaintiff relied on defendants’ conduct Plaintiff suffered harm because of defendant’s conduct

60
Q

What is required for a section 16(b) action?

A

Applicable corporation
Corporate insider officer, director, and shareholders with 10% or more of stock
Short-swing profits within six months Reporting requirements to SEC

61
Q

What are exceptions to the rule that a derivative action may not commence until 90 days have passed from date of demand?

A

Futility exception: demand would be futile
Irreparable injury excuse: delay would result in irreparable injury to corporation
Business judgment rule: reject was in best interest of corporation

62
Q

What are the two tests to determine corporate opportunity?

A

Interest or expectancy test (corporation has or is seeking interest)

Line of business test

63
Q

Who is a tippee?

A

A person who is given information by an insider or a constructive insider with the expectation that the information will be used to trade the stock or other securities.
To be liable, the tippee must have known (or should have known) that the information was provided to him in violation of the insider’s duty to the corporation

64
Q

Who is a tipper?

A

An insider who gives information to a tippee. The tipper must receive personal benefit from the disclosure or intend to make a gift to the tippee

65
Q

Who is a misappropriator?

A

A person who uses confidential information in order to trade stock or other securities in violation of the duty of confidentiality owed to the corporation

Themis (12 decks)

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