Corporations Flashcards
Promoter is liable for pre-incorporation agreements unless
(1) Subsequent novation releasing promoter from liability
(2) 3d Party looks to only C for performance
(3) Promoter had no actual knowledge that corporation’s charter had not yet been issued
Is promoter fiduciary of corporation?
Yes
May promoter seek compensation for expenses?
Yes, but only if acts were undertaken at C’s direction
When is C liable for pre-incorporation transaction?
Generally no, but is liable if expressly or impliedly adopts the transaction by accepting its benefit
Articles of incorporation
(1) Corp name and address
(2) Corp legal purpose
(3) Filed w appropriate fee
Ultra Vires Act
Shareholder, state, or board can sue to enjoin activity, IF EQUITABLE TO DO SO
De Facto Corp
Owner makes a good faith effort to comply w/ requirements, does not know incorporation failed
Corporation by estoppel
If you K with the corp as though it were a corp, you cannot deny corp’s existence
Common Stock v. Preferred Stock
Preferred stock has preference w/r/t distributions
SH’s Preemptive Rights
Right to purchase newly issued shares to maintain proportional ownership
Limitations on Dividends Issuance
Only the Board is authorized to make distributions.
Board cannot authorize dividends if C is insolvent or dividend would make C insolvent
SH can sue to compel distribution, but must show funds exist AND bad faith by directors in failing to issue dividend
When is a private restriction on sale of stock enforceable?
(1) Security certified
(2) Restriction conspicuously noted on security certificate
(3) Buyer had knowledge of restriction
(4) Restriction must be reasonable
10b-5 Action
(1) D’s Intentional or reckless fraudulent/deceptive conduct
(2) Related to a material fact
(3) Induced justifiable reliance
(4) Harm to P
(5) Interstate commerce
Rule 16(b) action
(1) C traded on nat’l securities exchange or assets of more than $10M & more than 500 shareholdres
(2) corporate insiders (Ds, Os, SHs >10% of stock)
(3) short-swing profits (bought and sold C’s stock during any six-month period)
Amendment of Articles of Incorporation
If stock has been issued, BD approves and then submits to SHs for majority approval
If no stock has been issued, BD can amend
Special SH Meetings
May be called by BD or SHs who own at least 10% of voting shares
Voting SHs must be notified of time/date/place w/in 10-60 days of meeting
SH may waive notice rights in writing or by attendance
SHs may take any meeting action w/out meeting, by unanimous written consent
Who can vote at meeting?
Record owners – owners of voting stock at COB of record date.
C cannot vote its own stock.
Quorum for meeting vote
Majority of SHs entitled to vote
Requirement for valid proxy vote
In writing + delivered to C or its agent
Does SH have a right to inspect records?
Yes, for a proper purpose and w/ 5 days written notice
Shareholder suit requirements
Direct Action: Sue for breach of fiduciary duty by D or O
Derivative: P SH at time of wrong, continues to be SH throughout litigation, fairly and adequately represents C’s interests, written demand upon BD unless futile (rejection of demand reviewed under business judgment rule)
SH Derivative Suit - Prevailing SH can seek reimbursement for reasonable litigation expenses
Piercing the Veil - Requirements
A court may pierce the corporate veil if it is equitable to do so in the totality of the circumstances. Courts will consider consider whether the C is being used as alter ego for SH personal dealings, and whether there is unity of interest and ownership btwn C and its members. Factors: Was C:
Undercapitalized
Disregarding corporate formalities
Using C’s assets as SH’s own assets/Siphoning C’s funds
Self-dealing with C
Using corporate form to avoid statutory requirements,
SH’s domination over C,
Fraudulent dealings w/ corporate creditor
Controlling SH - Definition and Duties
Definition: SH is “controlling” if holds enough ownership (individually or in concert with others) to enact changes at the highest level.
Duties of disclosure and fair dealing arise when:
(1) selling interest to outsider,
(2) seeking to eliminate other SHs from C, or
(3) receiving distribution denied to other SH
Directors: How Many or How Selected
At least one, voted at annual meeting
