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State Subjects > Corporations > Flashcards

Corporations Flashcards

1
Q

What does incorporator do?

A

1) Execute certificate
2) Delivery it to dept of State
3) Hold the organizational meeting

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2
Q

How many incorporators are needed and who can qualify

A

At least 1 adult human

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3
Q

Certificate/Articles of Incorporation

A

Contract between corporation and SH and corporation and state

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4
Q

Info needed in certificate (7 things)

A

1) Name - must contain corporation, incorporated, or limited
2) Address- county in NY of the office of incorporation
3) Designate secretary of state for service of process
4) Name and address of each incorporator
5) Statement of duration (lack of statement means perpetual duration)
6) Corporate purpose- can be general
7) Capital structure

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5
Q

Ultra vires actions by corporation

A

Going beyond the purpose indicated in certificate. Nowadays they are valid but SH can seek injunction and responsible managers are liable to corp. for ultra vires losses

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6
Q

What must be in the certificate about the corp’s stock?

A

1) Authorized stock
2) Number of shares per class
3) Info on par value, rights, preferences, and limitations of each class
4) Info on any series of preferred shares

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7
Q

What is effect of Department of State filing certificate?

A

Conclusive evidence of valid formation

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8
Q

What happens at organizational meeting?

A

Adopt bylaws and elect initial directors?

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9
Q

What political contributions can a corporation make?

A

No more than $5000 per year per candidate or organization

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10
Q

Can a corporation guarantee a loan not in furtherance of corporate business?

A

Yes, if approved by 2/3rds of the shares entitled to vote

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11
Q

Requirements for de facto corporation

A

1) There is a relevant incorporation statute
2) Parties made a good faith effort to comply with it
3) Business is being run as a corporation

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12
Q

Are bylaws necessary?

A

Nope

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13
Q

If bylaws are inconsistent with certificate, ______ controls

A

Certificate

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14
Q

Who can amend or repeal bylaws or adopt new ones?

A

Shareholders

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15
Q

Can BOD ever amend, repeal or adopt new bylaws?

A

Only if certificate or SH bylaw allows it

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16
Q

Who is liable on a pre-incorporation contract?

A

Corporation only if it adopts the contract.

Promoter- unless k clearly says otherwise, he is liable until there is a novation

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17
Q

How can corporation adopt a pre-incorporation contract?

A

1) Express adoption by board action

2) Implied adoption by knowingly accepting a benefit of the contract

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18
Q

Secret profit rule

A

Sale to corp. of property acquired before becoming promoter- Profit= price paid minus FMV

Sale to corp. of property acquired after becoming promoter- Profit= price paid by corp minus price paid by promoter

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19
Q

How does a foreign corporation qualify?

A

Apply to SecState and designate SecState as agent for service of process. Must provide info from certificate and notice of good standing at home

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20
Q

Ramifications for foreign corporation doing business in NY without first qualifying

A

Cannot sue in NY until it qualifies and pays fees, taxes, penalties, and interest

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21
Q

Issuance of stock occurs where

A

Corp. sells its own stock

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22
Q

Subscription

A

Written, signed offer to buy stock from a corp

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23
Q

Revocation of subscriptions

A

Pre-incorporation- Irrevocable for 3 months absent agreement otherwise or all subscribers let you revoke

Post-incorp- Revocable until accepted by the corp

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24
Q

What happens if corp accepts offer and subscriber defaults on payment?

A

If paid less than half purchase price and fails to pay rest within 30 days on demand, corp can keep the money and cancel the shares (if paid half or more, corp must try to resell stock)

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25
Q

Forms of consideration for stock issuance

A

1) Money
2) Tangible or intangible property
3) Services already performed for the corp
4) Binding obligation to pay money or property
5) Binding obligation to perform future services with agreed value

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26
Q

What if corp issued stock for no consideration?

A

Called unpaid stock and it’s all water

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27
Q

Can a corp issue par value stock to acquire property?

A

Yes, if the property is worth the par value amount. Board must not commit fraud

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28
Q

Watered stock

A

Stock sold below par value.

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29
Q

Who is liable for water?

A

Directors if they knowingly authorized the issuance

Buyer (we presume he knows it was water)

Third party buyer - only liable if knows it’s water

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30
Q

Pre-emptive rights

A

Right of an existing shareholder to maintain percentage of ownership by buying stock whenever there is a new issuance of common stock for money

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31
Q

Do pre-emptive rights automatically exist?

A

No. Must be stated in the certificate

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32
Q

Number of directors is set where

A

In bylaws or by SH act or by the board if SH bylaw allows it

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33
Q

After incorporation, who elects directors?

A

SH at annual meeting

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34
Q

When can shareholders remove a director

A

For cause, or without cause if certificate or bylaws permit it

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35
Q

When can the board remove a director?

A

For cause, only if certificate or shareholder bylaws permit it

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36
Q

Who selects a director to fill a vacancy?

A

Board unless director was removed by shareholders without cause

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37
Q

Two ways in which the board can take a valid act

A

1) Unanimous written consent

2) A meeting

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38
Q

Where must meeting be held?

A

Anywhere

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39
Q

Notice requirements for board meetings

A

1) Regular meetings- Not required if time/place set in bylaws
2) Special meeting- Notice required. Must state time and place

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40
Q

What if notice not given where required?

A

Action taken at meeting is void unless director waives the notice defect (a) in signed writing or (b) by attending the meeting without objection

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41
Q

How many directors needed for a meeting?

A

Quorum to have the meeting, majority vote to pass resolutions

42
Q

Can a corp. decrease a quorum to less than majority?

A

Yes, in the certificate or bylaws, but NEVER fewer than 1/3 of the entire board

43
Q

Can the board decrease the requirement for majority vote at meetings?

A

No

44
Q

Can the corp. increase a quorum or require supermajority vote

A

Yes, in the certificate only

45
Q

What can a committee not do? (4)

A

1) Set director compensation
2) Fill a board vacancy
3) Submit a fundamental change to shareholders
4) Amend bylaws

46
Q

Duty of care standard

A

Director must discharge vduties in good faith and with that degree of diligence, care and skill that an ordinarily prudent person would exercise under similar circumstances

47
Q

Showing breach of DOC through nonfeasance requires

A

Showing that the breach caused a loss

48
Q

BJR

A

Court will not second-guess a business decision if it was made in good faith, was reasonably informed, and had a rational basis (director is not a guarantor of success)

49
Q

Duty of loyalty standard

A

Director must act in good faith and with the conscientiousness, fairness, morality, and honesty that the law requires of fiduciaries

50
Q

Interested director transactions set aside unless (2)

A

1) The deal was fair and reasonable when approved OR
2) The material facts and her interest were disclosed/known and the deal was approved by (a) SH action (b) Board approval by sufficient vote excluding interested directors (c) unanimous vote of disinterested directors if majority are intested

51
Q

Three types of transactions that implicate DOL

A

1) Interested director transaction
2 Competing ventures
3) Corporate opportunity

52
Q

If director goes into competition with corp, what happens?

A

Corp gets a constructive trust for her profits. Corp may get damages if competition hurt it

53
Q

Corporate opportunity is something that

A

1) Corp needs
2) Corp has an interest or tangible expectancy in
3) Logically related to business

54
Q

Directors are liable for acts of the board unless

A

They dissent in writing

55
Q

How can a director dissent?

A

1) In the minutes
2) In writing to the corp. secretary at the meeting
3) Registered letter to corporate secretary promptly after the meeting

56
Q

When can a director not dissent?

A

If they voted yes at the meeting

57
Q

Good faith reliance on information prepared by ________ will protect individual directors

A

Information, opinions, reports, or statements by

1) officers or employees of the corp whom director or officer believes are competent
2) Lawyers and public accountants
3) Committee of which the person relying is not a member, as to matters within its designated authority

58
Q

Who selects and removes officers?

A

Board, unless certificate allows shareholders to elect them

59
Q

When can D&O be reimbursed from expenses for suit in capacity as officer or director?

A

1) Prohibited if held liable to the corporation
2) Must reimburse if won a judgment on the merits or otherwise
3) All other cases- permissive

60
Q

Certificate can eliminate director liability for damages for breach of duty except (4)

A

1) Acts in bad faith
2) Intentional misconduct
3) Received improper financial benefit
4) Approval of unlawful distribution or loan

61
Q

What is required for SH management in a close corporation?

A

1) All incorporators or SH approve it
2) It is conspicuously noted on front and back of all shares
3) All subsequent SH have notice
4) Shares are not listed on an exchange or regularly quoted OTC

62
Q

In a close corp run by SH, who owes duties of care and loyalty?

A

Managing SH

63
Q

What is a close corp?

A

1) Few shareholders

2) Stock is not publicly traded

64
Q

Piercing the corporate veil only happens with

A

Close corporations

65
Q

To PCV and hold SH personally liable, what must happen? (2)

A

1) D exercised complete domination over the corp

2) Domination was uded to commit a fraud or wrong against the plaintiff (abused the privilege of the corporate form)

66
Q

Is undercapitalization enough to PCV?

A

Not without complete domination and fraud or injustice

67
Q

What does SH get if they win a derivative suit?

A

Costs and attorneys fees, and might be able to get damages directly if the bad guys would win

68
Q

Requirements for derivative suit

A

1) Claim of the corporation
2) SH had stock ownership when claim arose (or gotten from someone who did) and must own it through judgment
3) Adequately represent interests of corp. and SH
4) Can be required to post bond
5) Demand requirement unless futile

69
Q

After there has been a demand and the board refuses to sue, can SH bring the suit anyway?

A

Only if can show that a majority of the board was interest or its procedure was incomplete/inadequate

70
Q

Special litigation committee

A

Corp can move to dismiss based on a finding of independent directors that it’s not in their best interests

71
Q

What does court look at in deciding whether to dismiss upon recommendation from special litigation committee?

A

1) Independence of those making investigation

2) Sufficiency of investigation

72
Q

D or O can sue and other D or O for what?

A

To compel her to account for violation of duties or misappropriation of corporate assets (does not have to meet the requirements for derivative suit that SH does)

73
Q

Who votes a shareholder’s stock?

A

Record owner at record date

74
Q

Can corporation vote treasury stock?

A

No

75
Q

What is required for proxy voting?

A

1) Writing
2) Signed by record shareholder or authorized agent
3) Director to secretary of the corp
4) Authorizing another to vote the sahres

76
Q

How long is a proxy good for

A

Good for 11 months unless it says otherwise

77
Q

When is a proxy irrevocable?

A

1) States it is irrevocable AND
2) Proxy holder has an interest in the stock (like an option)

OR

3) If it says so and is given subject to a voting agreement

78
Q

Does death revoke a proxy?

A

Only when notice is given to corporate secretary

79
Q

How can shareholders vote in blocks?

A

1) Voting trusts

2) Voting agreements

80
Q

Requirements for voting trusts

A

1) Written trust agreement controlling how the shares will be voted
2) Copy to the corporation
3) Transfer legal title of shares to voting trustee
4) Original SH receive trust certs and retain SH rights other than voting

81
Q

Requirements and enforceability of voting agreements

A

Signed writing. Not specifically enforceable

82
Q

Shareholders can take action in what two ways

A

1) By shareholder meeting

2) Without meeting if written consent of 100% of SH entitled to vote (unless cert authorizes less)

83
Q

Where can stock transfer restrictions be set?

A

Certificate, bylaws, or by agreement

84
Q

When are stock transfer restrictions valid?

A

If they are not an undue restraint on alienation

85
Q

What can a shareholder demand access to?

A

1) Minutes of SH proceedings and record of SH on 5 days written demand (affidavit if required by corp)
2) List of current D&O (no affidavit required) on 2 days demand
3) Corp’s latest annual balance sheet, profit/loss statement
4) Common law right to inspect records at reasonable time and proper place for proper purpose

86
Q

When will a court interfere with Board’s decision not to order a distribution?

A

Only on a showing of bad faith or dishonest purpose

87
Q

Distribution can only come from

A

Surplus (assets-liabilities-stated capital)

88
Q

When can a corp not make distributions?

A

If it is insolvent or the distribution would render it insolvent

89
Q

What must a shareholder do to perfect the right of appraisal?

A

1) Before shareholder vote, file written objection and intent to demand payment
2) Abstain or vote against the change
3) After vote, make written demand to be bought out

90
Q

Significant changes to certificate require

A

Director action and majority of shareholders entitled to vote

91
Q

Approval for merger requires

A

Each company’s board has to approve it and each corp’s SH must approve (majority of eligible to vote)

92
Q

Are there dissenting SH right of approval for merger?

A

For the shareholders of the acquired company but not the acquiring company

93
Q

What is needed to approve an asset transfer?

A

Each corp’s board must authorize the deal and approval by selling corp’s shareholders

94
Q

What is necessary for voluntary dissolution?

A

Majority of shares entitled to vote, no Board vote needed

95
Q

What is the special rule for judicial dissolution in a close corp?

A

Action brought by 20% or more of voting shares in corp not traded on a securities market asserting either

1) Management’s illegal, oppressive, or fraudulent acts toward the SH
Management wasting, diluting, or diverting assets

96
Q

When will the court deny dissolution for the 20% SH rule?

A

If there is some other way the complaining shareholder an obtain a fair return on investment

97
Q

How may the corporation or non-complaining SH try to avoid dissolution in a closely held corp?

A

Within 90 days of petition, buy petitioner’s stock at fair value at terms approved by court

98
Q

Order of priority at dissolution

A

Creditors MUST come before shareholders

99
Q

Control premium

A

Sale by controlling shareholder that comes with premium for being able to control the corporation

100
Q

Does controlling shareholder get to keep the control premium? (rule and exception)

A

Yes.

Exceptions

1) Controlling shareholder sold to looters without making a reasonable investigation (entitles minority SH to disgorgement and probable liability)
2) Controlling SH de facto sells a corporate asset
3) Controlling shareholder sells seat on the board

101
Q

In a freeze out merger, court looks at transaction as a whole. Specific factors include (3)

A

1) Whether there is self-dealing/fraud
2) Whether the minority shareholders are dealt with fairly
3) Whether there is a legitimate business reason for the merger

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