Corporations Flashcards
List mandatory provisions of articles of incorporation.
- Name of corporation, including “Corporation”
- Information about stock (# of shares, express terms of shares and classes of shares)
- Amount of initial capital
Test for piercing the corporate veil
(1) control so complete that corporation has not separate will or existence;
(2) control = fraud, illegal act, or unlawful act against P;
(3) injury or unjust loss from that wrong
Other financial factors for piercing the veil:
- Commingling of funds/assets;
- undercapitalization;
- One corporation treats the assets of another as its own
What is a promoter?
He causes corporation to be formed, organized, and financed. He owes fiduciary duty to corporation and duty of disclosure.
What is liability of promoter on pre-incorporation contracts?
He is personally liable unless and until there is novation (all parties agree) or agreement to release liability.
When is corporation liable on pre-incorporation contract?
Only when it agrees or accepts benefits of the contract.
List general rights of shareholders.
- Right to current return on investment;
- Right to share of corporate assets when corporation ceases to exist;
- Right to a voice in managing the corporation
What is a “preemptive right”?
Right of existing shareholder to acquire unissued or treasury shares in the corporation.
This applies if incorporated before March 2000. Does not apply after that date unless stated.
Explain the shareholder’s right to dividends
No inherent right to be paid a dividend. Board of directors has discretion to decide when to declare a dividend.
BOD MAY NOT DECLARE DIVIDEND if it would render corporation insolvent.
But once the dividend declared, the corporation MUST pay it to shareholders.
Explain redemption.
Occurs when corporation has the right to compel shareholder to sell shares back to it.
But corporation does not have inherent right of redemption; only if authorized by express terms of shares.
What actions can shareholders take in terms of managing the corporation?
- elect and remove directors;
- amend the bylaws
- approve fundamental changes to corporation
What is the shareholder’s right to information?
Each corporation must keep correct and complete books and records.
Any shareholder has right to examine in person or by agent, at reasonable time, these books/records upon written demand.
How can director or BOD be removed?
With or without cause by majority of shareholders entitled to vote
What is required for merger and consolidation?
Plan must be submitted to shareholder vote at special or annual meeting with written notice to all shareholders, even if they are not entitled to vote.
What is short-form merger?
Merger of subsidiary corporation into parent corp.
Don’t need approval if parent owns at least 90% of shares of the subsidiary.
