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Business Organizations > Corporations > Flashcards

Corporations Flashcards

1
Q

When is a promoter liable for pre-incorporation transactions?

A

A promoter is personally liable for knowingly acting on behalf of a corporation before incorporation, and remains liable unless:

(a) there’s a novation;
(b) the third party only looks to the corporation for performance; or
(c) the promoter had no knowledge the corporate charter has not yet been issued

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2
Q

When is a corporation liable for pre-incorporation transactions?

A

Generally never, but the corporation may expressly or impliedly accept the benefits of the transaction, or otherwise accept liability

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3
Q

What is required for the articles of incorporation?

A

The name, tag, statement of corporation’s purpose, and be filed with the state

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4
Q

Do the articles have to enumerate the corporation’s powers?

A

No

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5
Q

Do the articles have to limit the corporation’s duration?

A

No, but it can

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6
Q

What is an ultra vires action?

A

A c/a to enjoin a corporation from acting contrary to the corporation’s purpose.

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7
Q

Who can a shareholder sue in an ultra vires action?

A

A corporate director, officer, or employee engaged in the challenged action can initiate a proceeding

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8
Q

When does a corporation become liable for its activities?

A

When it is incorporated.

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9
Q

If incorporation is defective, can the owner of the company escape personal liability?

A

Yes, if satisfying either:

  1. A de facto corporation - a GF compliance with inc. requirements, OR
  2. Corporation by estoppel
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10
Q

What does corporation by estoppel do?

A

a person dealing with an entity as though it were a corporation cannot deny its existence and seek personal liability

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11
Q

What is common stock?

A

Basic ownership interest that gives the right to vote on corporate matters

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12
Q

What is preferred stock?

A

Has preference over other stock with regards to distributions

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13
Q

Who authorizes the issuance of stock?

A

The board, or SHs

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14
Q

Who is authorized to make distributions?

A

The board

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15
Q

What is an enforceable restriction on sale for a security?

A
  1. Must be certified
  2. Must be conspicuously noted
  3. Holder must know of restriction
  4. Must be reasonable
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16
Q

What is required for a 10b-5 action?

A
  1. Plaintiff must have bought or sold security;
  2. Interstate commerce
  3. Fraudulent or deceptive conduct;
  4. Materiality
  5. D’s scienter
  6. Justifiable reliance
  7. Harm
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17
Q

What is required for a 16(b) insider trading action?

A
  1. Traded on national securities exchange OR >$10m and >500 SHs
  2. Insider = directors, officers, shareholders w/ more than 10% of stock
  3. Swing of profits in 6mo period
  4. SEC report of change in stock ownership
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18
Q

When can the articles of incorporation be amended?

A
  1. If no stock has been issued, the board can whenever.

2. If stock has been issued, board adopts and majority SHs approve

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19
Q

What occurs at an organizational meeting?

A

Appointment of officers, adoption of bylaws, and approval of contracts

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20
Q

What is an annual shareholder meeting?

A

It convenes to elect the board

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21
Q

What is a special shareholder meeting?

A

Called by board or SHs with 10% of voting stock

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22
Q

What is sufficient notice of a special meeting?

A

Must be notified of time, date, and place no less than 10 days before and no more than 60 before

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23
Q

Can a shareholder waive notice of a meeting?

A

Yes, by attendance or by writing

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24
Q

What is cumulative voting?

A

Shareholders can accumulate votes to allow minority SHs to elect a director

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25
Q

When is proxy voting permissible?

A

It must be in writing and delivered to the corporation or its agent

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26
Q

What is a voting pool agreement?

A

The shareholders are bound to vote with each other by agreement

27
Q

What is a voting trust?

A

A trust to which legal ownership of shareholder’s stock is transferred. The trustee votes the shares and distributes accordingly.

28
Q

What makes a valid voting trust?

A

It must be in writing, limited to 10 years, and filed with the corporation

29
Q

When can a shareholder inspect records?

A

When the SH has a proper purpose, may inspect on 5 days’ notice

30
Q

What is a direct SH action?

A

Enforces SH rights for breach of fiduciary duty by a director or officer, and must fairly and adequately represent corporation’s interest

31
Q

What is a derivative action?

A

SH sues on behalf of corporation for harm suffered by corporation

32
Q

When does a plaintiff have standing to bring a derivative action?

A
  1. Must be SH at time of wrong, at time of filing and during litigation
  2. Must fairly and adequately represent corporation’s interests
33
Q

When must a plaintiff make a written demand in a shareholder action?

A

Always, unless futile. Futility is not recognized under RMBCA, and rejection of demand is tested by BJR

34
Q

Can the plaintiff recover litigation expenses?

A

Yes, for reasonable fees

35
Q

When can a plaintiff pierce the corporate veil?

A

Must show corporate form is just a formality and protocols not followed. Look to undercapitalization, disregard of corporate formalities, self-dealing, co-mingling, siphoning funds, etc.

36
Q

What is a controlling shareholder’s duty to minority shareholders?

A

A controlling shareholder who has a high enough percentage of interest has a duty to disclose information important to a reasonable person and a duty of fair dealing when buying minority shares

37
Q

Can a corporation be on the board?

A

No

38
Q

What are the requirements for a meeting of the board?

A

Must give 2 days’ notice of time, date, place of special meetings to directors, but regular meetings require no notice

39
Q

What are the voting requirements for a board meeting?

A

Must be majority of present directors. Agreements on voting are enforceable

40
Q

What is the duty of care?

A

A director has a duty to act with the care that a person in a like position would reasonably believe appropriate under the circumstances.

Reliance on information of officers, employees, experts, or committees is a shield if reasonable

41
Q

What is the business judgment rule?

A

A rebuttable presumption that a director reasonably believed his actions were in the best interest of the corporation.

42
Q

What is the duty of loyalty?

A

A director must act in a manner that the defendant reasonably believes is in the best interest of the corporation.q

43
Q

When does self-dealing violate the duty of loyalty?

A

When a director engages in a conflict-of-interest transaction normally requiring approval of the board that is not protected by a safe-harbor rules

44
Q

When does usurpation of a corporate opportunity violate the duty of loyalty?

A

When a director takes an opportunity, determined by either the interest or expectancy test or the line-of-business test, though other factors may be relevant.

45
Q

When is a corporation required to indemnify a director who was sued?

A

Whenever a reasonable expense was incurred in a successful defense, or if the director lost but acted in good faith. It may not indemnify if the defendant received an improper benefit.

46
Q

What duties do officers have?

A

The same as directors, and the CEO and CFO are subject to the Sarbanes-Oxley Act and must certify accuracy of corporation’s financials to SEC

47
Q

When can a corporation be terminated?

A

By either voluntary or involuntary dissolution

48
Q

What is voluntary dissolution?

A

The board adopts a proposal for dissolution and a majority of SHs approve

49
Q

What is winding up?

A

Winding up is when a corporation continues to collect assets, dispose of undistributed property, and discharge liabilities.

50
Q

What involuntary dissolution?

A

Creditors can pursue against insolvent corporation, or SHs can pursue involuntary dissolution if corporate assets are wasted, directors are acting fraudulently, or SHs are deadlocked on board

51
Q

What is the oppression doctrine?

A

SHs are protected from oppressive majority control, and involuntary dissolution protects reasonable expectations of SHs

52
Q

Does the BJR apply to self-interested transactions?

A

Generally not

53
Q

When does a conflict of interest transaction fall into a safe harbor?

A
  1. Majority vote of informed or disinterested directors
  2. Majority vote of informed and disinterested shareholders
  3. Fairness of the transaction
54
Q

What is the fairness test for self-interested transactions?

A
  1. Did corporation receive something of comparable value?
  2. Was the process followed appropriate?

Burden falls on interested directors

55
Q

What limits are there on distributions by the board?

A

A corporation may not make a distribution if it is insolvent or if the distribution would cause the corporation to be insolvent

56
Q

How is solvency determined?

A

Two part test:

  1. Equity test - must be able to pay off debts as they come in
  2. Balance sheet test - assets > liabilities + liquidation preferences of senior securities
57
Q

Who is liable if the corporation makes an unlawful distribution?

A

Any director that votes for it, personally

58
Q

When can a director avoid liability for improper or illegal action taken by the board?

A
  1. Promptly object
  2. Ensure dissent is in minutes
  3. Not vote, deliver notice of dissent to presiding officer either during or immediately after meeting
59
Q

What procedural requirements are necessary for a merger?

A
  1. Board approval by each corp
  2. SH approval
  3. Req docs filed with state
60
Q

When is shareholder approval not needed for a merger?

A
  1. Parent-subsidiary merger (90% of sub owned by parent)

2. Minnow-whale merger (not needed if merger can’t result in >20% increase in voting power of outstanding stock)

61
Q

What is a dissenting SHs right of appraisal?

A

A SH who objects to an M&A or articles amendment has the right to force a purchase of his stock at FMV

62
Q

What is required to exercise a right of appraisal?

A
  1. Notice to corp

2. Written demand

63
Q

When may a shareholder pursue involuntary dissolution?

A
  1. Waste
  2. Oppression
  3. Board deadlock, SHs can’t break it, and irreparable injury
  4. SHs deadlocked

Business Organizations (3 decks)

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