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Bar Exam > Corporations > Flashcards

Corporations Flashcards

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1
Q

A corporation is owned by _________.

A

Its shareholders.

A corporation is owned by its shareholders.

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2
Q

The group in charge of management of a corporation is _____________.

A

The board of directors.

The group in charge of management of a corporation is the board of directors.

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3
Q

Members of the board of directors are elected by the ___________.

A

The shareholders.

Members of the board of directors are elected by the shareholders.

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4
Q

To form a corporation, what must a person do as an incorporator?

_____________________________

A

To form an incorporation, an incorporator must execute articles and deliver them to the secretary of state.

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5
Q

What is ‘Authorized Stock’?

_____________________________

A

Authorized stock is the maximum number of shares the corporation can sell.

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6
Q

A de jure corporation is formed at what point?

_____________________________

A

A de jure corporation is formed when the incorporators:

  1. Have notarized articles delivered to the secretary of state.
  2. Have paid the required fees, and
  3. The Secretary of State’s office accepts the articles for filing.
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7
Q

_________ are an internal document that compromises an operating manual, with things like setting record dates and methods of giving notice.

A

Bylaws

Bylaws are an internal document that compromises an operating manual, with things like setting record dates and methods of giving notice.

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8
Q

Who can amend or repeal the bylaws or adopt new ones?

_____________________________

A

Either the shareholders or the board of directors may amend/repeal the bylaws or adopt new ones.

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9
Q

De Facto Corporation Requirements:

  1. ____________________
  2. ____________________
  3. ____________________

If the above applies, the business is treated as a corporation (except in actions by the state).

A

De Facto Corporation Requirements:

  1. Relevant incorporation statute
  2. Parties made good faith/colorable attempt to comply
  3. Exercise of corporate privileges

If the above applies, the business is treated as a corporation (except in actions by the state).

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10
Q

A ___________ is a person acting on behalf of a corporation not yet formed.

A

Promoter

A Promoter is a person acting on behalf of a corporation not yet formed.

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11
Q

A promoter may enter a contract on behalf of a corporation not yet formed.

When is the corporation liable on these contracts?

A

A corporation is liable on a pre-incorporation contract only if it adopts the contract.

Implied adoption arises when the corporation accepts a benefit of the contract.

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12
Q

When is a promoter liable for contracts the promoter enters into, on behalf of corporations not yet formed?

A

A promoter is liable for contracts on pre-incorporation contracts unless there is a novation.

Even if a corporation adopts the contract, the promoter remains liable until a novation.

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13
Q

A foreign corporation transacting business within a state must:

  1. ___________
  2. ___________
A

A foreign corporation transacting business within a state must:

  1. Qualify (by getting certificate of authority from Sec. of State)
  2. Pay prescribed fees
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14
Q

A corporation is considered “foreign” if….

A

A corporation is considered foreign if it is formed anywhere outside of the state.

A corporation need not be from another country to be considered foreign.

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15
Q

What happens if a foreign corporation transacts business without qualifying?

  1. ___________
  2. ___________
A

What happens if a foreign corporation transacts business without qualifying?

  1. Civil fine
  2. Corporation cannot assert a claim in the state, though the foreign corporation may be sued/defend in the state.
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16
Q

____________ also called “____” are issued when a corporation borrows money from X and agrees to repay X with interest.

A

Debt securities, also called “Bonds” are issued when a corporation borrows money from X and agrees to repay the with interest.

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17
Q

A person holding a bond is legally considered a _________.

A

Creditor.

A person holding a bond is legally considered a creditor of the corporation, rather than an owner of the corporation.

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18
Q

____________ also called “____” are issued when a corporation sells an ownership interest to X.

A

Equity securities, also called “Stocks” are issued when a corporation sells an ownership interest to X.

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19
Q

A person holding a stock is legally considered a _________.

A

Owner.

A person holding a stock is legally considered an owner, rather than a creditor of the corporation.

20
Q

“__________ stock” is stock the corporation issued and then reacquired.

A

“Treasury stock” is stock the corporation issued and then reacquired. It is considered authorized and may be resold by the corporation at any issuance price the corporation chooses.

21
Q

Pre-Emptive Right is the right of an existing shareholder of common stock to….

A

Pre-Emptive Right is the right of an existing shareholder of common stock to….

Maintain her percentage of ownership by buying stock whenever there is a new issuance of stock for money.

22
Q

In most states, shareholders may remove directors before their terms expire on what basis?

A

With or without cause.

Shareholders may remove directors with or without cause in most states, though some states only allow shareholders to remove a director for cause.

23
Q

How much notice is required for:

  1. Regular meetings?
  2. Special meetings?
A
  1. Regular meetings have no notice requirement.

2. Special meetings must have notice provided at least 2 days in advance and including date/time/place of the meeting.

24
Q

Shareholders may vote using proxies. However, Directors may not, because….

A

Directors owe non-delegable fiduciary duties.

25
Q

A director owes two duties to the corporation:

  1. The duty of _____
  2. The duty of _____
A

A director owes two duties to the corporation:

  1. The duty of loyalty
  2. The duty of care
26
Q

What is the standard for a director’s duty of good faith?

A

A director must discharge her duties in good faith and with the reasonable belief that her actions are in the best interest of the corporation.

27
Q

What is the standard for a director’s duty of care?

A

A director must use the care that a prudent person in her position would reasonably believe appropriate under the circumstances.

28
Q

Duty of Care

A director may violate the Duty of Care in two ways:

  1. __________
  2. __________

The burden is on the _____.

A

Duty of Care

A director may violate the Duty of Care in two ways:

  1. Nonfeasance
  2. Misfeasance

The burden is on the plaintiff to prove the violation.

29
Q

Duty of Loyalty

These cases are usually about ‘conflicts of interest’ and often materialize in 3 ways:

  1. __________
  2. __________
  3. __________
A

Duty of Loyalty

These cases are usually about ‘conflicts of interest’ and often materialize in 3 ways:

  1. Self-dealing
  2. Competing ventures
  3. Corporate Opportunity (Expectancy)
30
Q

Officers are selected and removed by __________, who also set officer compensation.

A

Officers are selected and removed by the board of directors, who also set officer compensation.

31
Q

Indemnification

A corporation cannot indemnify a director or officer who __________________________________________.

A

Indemnification

A corporation must indemnify a director or officer who was sued by/or on behalf of the corporation, but prevailed in the case. (on the merits or otherwise)

32
Q

Indemnification

A corporation may indemnify a director or officer who __________________________________________.

A

Indemnification

A corporation may indemnify a director or officer who acted in good faith with a reasonable belief that she acted in the corporation’s best interests.

33
Q

What are the characteristics of a close corporation?

  1. _______________
  2. _______________
A

What are the characteristics of a close corporation?

  1. Few shareholders (no set number)
  2. Stock not publicly tradeable
34
Q

What is the special fiduciary duty within close corporations?

A

Shareholders owe a duty of utmost good faith to other shareholders in a close corporation.

35
Q

If a court “pierces the corporate veil”, a shareholder may __________________.

A

If a court “pierces the corporate veil”, a shareholder may be held personally liable for a corporations actions.

This may occur in close corporations only.

36
Q

In order to Pierce the Corporate Veil and hold a shareholder liable, the shareholder must have:

  1. _______________
  2. _______________
A

In order to Pierce the Corporate Veil and hold a shareholder liable, the shareholder must have:

  1. Abused the privilege of incorporating
  2. Fairness must require holding them liable
37
Q

In a derivative suit, _____________ sues to enforce ____________________.

A

In a derivative suit, the shareholder sues to enforce the corporation’s claim.

A shareholder steps in to prosecute a claim for the corporation, because the corporation is not pursuing its own claim.

38
Q

If a shareholder plaintiff wins a derivative suit, what is the result?

  1. For the shareholder?
  2. For the corporation?
A

If a shareholder plaintiff wins a derivative suit, what is the result?

  1. The shareholder receives costs and attorney’s fees.
  2. The corporation receives the money from the judgment.
39
Q

If a shareholder plaintiff loses a derivative suit, what is the result?

  1. For the shareholder?
  2. For the corporation?
A

If a shareholder plaintiff loses a derivative suit, what is the result?

  1. The shareholder does not receive costs or attorney’s fees, and if the shareholder sued without reasonable cause, the shareholder may be sued for costs and attorney’s fees by the opposing party.
  2. The corporation receives nothing.
40
Q

What are the requirements for bringing a shareholder derivative suit?

  1. _______________
  2. _______________
  3. _______________
A

What are the requirements for bringing a shareholder derivative suit?

  1. Stock ownership when the claim arose and throughout the suit
  2. Adequate representation of the corporation’s interest
  3. Written demand made by the plaintiff that the corporation bring suit.
41
Q

In order for a shareholder to vote, a shareholder must be the “_______” of outstanding stock as of the “________” to vote.

A

record shareholder; record date

In order for a shareholder to vote, a shareholder must be the “record shareholder” of outstanding stock as of the “record date” to vote.

42
Q

How may a shareholder revoke a proxy given to another person to vote?

  1. _______________
  2. _______________
A

How may a shareholder revoke a proxy given to another person to vote?

  1. Revoking the proxy in writing
  2. Attending the meeting and voting
43
Q

If no annual meeting is held within __ months, a shareholder can _______________________.

A

If no annual meeting is held within 15 months, a shareholder can petition the court to order one.

44
Q

At the annual meeting, the shareholders vote to __________________.

A

At the annual meeting, the shareholders vote to elect directors.

45
Q

Shareholders must have a ‘quorum’ to vote.

As a general rule, quorum requires __________________________.

A

Shareholders must have a ‘quorum’ to vote.

As a general rule, quorum requires a majority of outstanding shares.

46
Q

If quorum requirement is met, the shareholders may vote.

What vote is required for the below:

  1. To elect a director?
  2. To remove a director?
  3. Most other matters?
A

If quorum requirement is met, the shareholders may vote.

What vote is required for the below:

  1. A plurality vote is required to elect a director. (more votes for a person for a seat than votes for anyone else).
  2. A majority of the shares entitled to vote are required to remove a director.
  3. Most other matters require only a a majority of the shares that actually vote on the issue.

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