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DSF Cal Bar > Corporations > Flashcards

Corporations Flashcards

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1
Q

Promoter is liable for pre-incorporation agreements unless

A

(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

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2
Q

Is promoter fiduciary of corporation?

A

Yes

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3
Q

May promoter seek compensation for expenses?

A

Yes, but only if acts were undertaken at C’s direction

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4
Q

When is C liable for pre-incorporation transaction?

A

Generally no, but is liable if expressly or impliedly adopts the transaction by accepting its benefit

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5
Q

Articles of incorporation

A

(1) Corp name and address
(2) Corp legal purpose
(3) Filed w appropriate fee

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6
Q

Ultra Vires Act

A

Shareholder, state, or board can sue to enjoin activity, IF EQUITABLE TO DO SO

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7
Q

De Facto Corp

A

Owner makes a good faith effort to comply w/ requirements, does not know incorporation failed

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8
Q

Corporation by estoppel

A

If you K with the corp as though it were a corp, you cannot deny corp’s existence

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9
Q

Common Stock v. Preferred Stock

A

Preferred stock has preference w/r/t distributions

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10
Q

SH’s Preemptive Rights

A

Right to purchase newly issued shares to maintain proportional ownership

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11
Q

Limitations on Dividends Issuance

A

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

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12
Q

When is a private restriction on sale of stock enforceable?

A

(1) Security certified
(2) Restriction conspicuously noted on security certificate
(3) Buyer had knowledge of restriction
(4) Restriction must be reasonable

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13
Q

10b-5 Action

A

(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

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14
Q

Rule 16(b) action

A

(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)

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15
Q

Amendment of Articles of Incorporation

A

If stock has been issued, BD approves and then submits to SHs for majority approval
If no stock has been issued, BD can amend

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16
Q

Special SH Meetings

A

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

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17
Q

Who can vote at meeting?

A

Record owners – owners of voting stock at COB of record date.
C cannot vote its own stock.

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18
Q

Quorum for meeting vote

A

Majority of SHs entitled to vote

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19
Q

Requirement for valid proxy vote

A

In writing + delivered to C or its agent

20
Q

Does SH have a right to inspect records?

A

Yes, for a proper purpose and w/ 5 days written notice

21
Q

Shareholder suit requirements

A

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

22
Q

Piercing the Veil - Requirements

A

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

23
Q

Controlling SH - Definition and Duties

A

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

24
Q

Directors: How Many or How Selected

A

At least one, voted at annual meeting

25
Q

BD Meeting: Requirements

A

Two days’ notice for special meetings (time/date/location)

No notice of regular meetings

26
Q

BD Voting Requirements and Prohibitions

A

Requires:

(1) Quorum (majority of all Ds in office), and
(2) Majority Vote (majority of D’s present)

Prohibited:

(1) Voting agreements
(2) Proxies

27
Q

Directors: Election, Terms, Removal

A

By SH, One Year Term, Removal by SH w/ or w/o cause

28
Q

Duty of Care

A

Duty to act w/ care that a person in a like position would reasonably believe appropriate under similar circumstances. Must use special skills/knowledge, and can reasonably rely on Os, employees, outside experts, or committees. Business judgment rule applies

29
Q

Business Judgment Rule

A

A Director is presumed to reasonably believe his actions were in the best interest of C. Rebuttable upon showing of:

Self-dealing/material interests in challenged conduct
Bad faith
Failed to devote attention to C’s affairs
Failed to timely investigate matters of material concern

30
Q

Duty of Loyalty

A

Must act in a manner that D reasonably believes is in the best interest of C. No self-dealing, usurpation of corporate opportunities, or competition with C.

Self-dealing: D cannot engage in business transaction w/ own C, or profit at C’s expense, unless deal is procedurally and substantively fair and D does disclosure + BD ratification

Usurpation of corporate opportunity: D cannot profit from an opportunity in which C has an existing or expectancy interest. Test for expectancy: C’s line of business, how did D learn of opportunity, relationship between C and third party.

Competition with C is a per se breach.

31
Q

Indemnifying D

A

C may indemnify for reasonable expense incurred in (1) successful defense of proceeding against D or (2) unsuccessful defense where D acted reasonably and in good faith

C cannot indemnify D against liability for receipt of improper personal benefit

32
Q

D’s Inspection Rights

A

D has rights to inspect and copy C’s books and records

33
Q

Officers - Election, Removal

A

Elected by BD, Removed w/ or w/o cause by BD

34
Q

Officer/Employee Authority

A

Actual: Corporate bylaws or BD

Implied: To perform tasks necessary to carry out O’s duties, as long as w/in scope of ordinary business

Apparent: If C holds out O to have authority to bind C to third parties

35
Q

Duties of Os

A

Loyalty, Care

36
Q

O’s Personal Liability to 3d Parties

A

Only if acted in personal capacity or engaged in purposeful tortious behavior

37
Q

Mergers and Acquisitions

A

Require BD and SH approval (quorum + majority vote) for each C; file new docs w/ state.

Dissenting SH can force C to buy stock at fair value as determined by an appraisal

38
Q

Can C acquire stock in another C?

A

Yes

39
Q

Dissenting SH’s Rights

A

Dissenting SH for fundamental changes (including mergers and acquisitions) can force C to buy stock at fair value as determined by an appraisal

40
Q

Sale of Major Corporate Assets

A

Requires Require BD and SH approval (quorum + majority vote) for transferor C.

41
Q

Voluntary Dissolution

A

If stock has been issued, requires BD and SH approval (quorum + majority vote)

42
Q

Winding Up

A

Dissolving C can continue to collect assets, discharges liabilities before disposing of property to SHs according to their interests

43
Q

Involuntary Dissolution

A

Creditors can pursue involuntary dissolution if C is insolvent
SHs can pursue involuntary dissolution to protect their reasonable expectations, if:
C’s assets are being misused,
Ds are acting illegally/oppressively/fraudulently, and
SHs are unable to break Ds deadlock causing irreparable injury.

44
Q

Requirements to join LLC or transfer LLC interest

A

Unanimous concent of all members

45
Q

Termination of LLC membership

A

LLC may liquidate fair value of that person’s interests

46
Q

Allocation of profits and losses

A

Unless Operating Agreement says differently, according to member’s contributions to LLC

47
Q

Duties of LLC Members

A

Duty of Care

Duty of Loyalty, although reasonable limited waivers of duty may be recognized

DSF Cal Bar (12 decks)

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