Corporations Flashcards
Although the board of directors and officers manage the corporation on a day-to-day basis, the following _____ corporate decisions, once adopted by the board of directors, must also be approved by the shareholders:
SAD LAMP
S – SUPERMAJORITY voting for shareholder quorum or voting
A – Increasing the number of AUTHORIZED shares in the articles of incorporation
D – Voluntary DISSOLUTION of a corporation
L – LIMITING director liability
A – Selling, leasing, or exchanging substantially all of the corporation’s ASSETS, where such liquidation is not done in the regular course of the corporation’s business
M –MERGER or consolidation with another corporation, limited partnership, or LLC
P –To create or abolish PREEMPTIVE rights or cumulative voting for directors
To be binding on new shareholders joining the corporation, the following ______ rights and limitations must be placed in the Articles of Incorporation filed in the corporation’s state of incorporation:
BAD CLASP
B – BYLAWS can only be adopted, amended or repealed by shareholders (not directors) A – Shareholder AGREEMENTS
D – DISSOLUTION of the corporation on less than a majority vote of shares.
C – Granting or removing shareholder CUMULATIVE voting for electing directors
L – LIMITING directors liability for negligent breach of duty of care, but not for a
breach of fiduciary duty
A – Increasing the number of corporate AUTHORIZE shares to be issued by the
corporation
S – SUPERMAJORITY quorum or voting requirement at shareholder meeting
P – PREEMPTIVE rights are given to shareholder
A dissenting shareholder can seek appraisal rights if the corporation approves ____ activity:
CAMP
C – Abolishing CUMULATIVE voting
A – Selling, leasing, or exchanging substantially ALL of the corporation’s assets
M – MERGER or consolidation of the corporation
P – Abolishing PREEMPTIVE rights, redemptive rights, or other stock rights
For a closely-held or family-owned corporation, the court considers the three ____ methods for valuing the stock of a minority interest:
AIM
A – Net ASSET value, after subtracting corporate liabilities, for corporations holding
substantial tangible or real property assets
I – The INVESTMENT value, in which the court looks at the earning power of the
corporate stock (i.e., price paid v. earnings made by dividends)
M – MARKET value for the stock, based upon what a willing buyer would offer to pay
in an arm’s length transaction for those shares of stock, which is frequently based on sales of similar businesses
A proxy is revocable at the whim of a shareholder, unless it is an irrevocable ____ proxy, which is a proxy coupled with an interest:
PEACE
P – PLEDGED shares for a loan
E – Person ENTITLED to the shares (buyer of the shares who owns them, but was not
the owner of record on the corporate books when the meeting was called)
A – An AGREEMENT between shareholders to vote the shares in a particular way, and
they execute irrevocable proxies for that purpose
C – A corporate CREDITOR who was given an irrevocable proxy for extending new
credit, or agreeing to continue credit to the corporation
E – A corporate EMPLOYEE is given a proxy to vote
In many states because of an overriding business reason, preemptive rights do not apply to a corporation issuing stock for ______:
AT&T CO
A – Shares issued to ATTRACT or keep corporate employees
T – Shares sold by the corp within six months to TWO YEARS after filing the certificate
of incorporation (the time period varies from state to state).
T – TREASURY shares, which are shares previously owned by a corporate shareholder,
but which were purchased back by the corp and held in its treasury
C – Shares of stock issued by the corp for consideration other than CASH
O – Shares issued to affect an ORGANIC change, such as consolidation or merger
Judicial review of the actions of a board of directors is barred by the Business Judgment Rule, as long as it falls within the _____
GAP:
G – The board acted in GOOD faith
A – The board’s actions were within the scope of its AUTHORITY; AND
P – The activity was in furtherance of a lawful and legitimate corporate PURPOSE
Interested directors benefit from ____
2 Fs:
F – The contract or transaction was FAIR and reasonable to the corporation when it was
approved by the board of directors
F – The director made a FULL disclosure of his or her interest in that transaction, and the
transaction was either submitted to the shareholders for approval or the board of directors approved the transaction without counting the vote of the interested director
Board of directors’ committees can’t take a _____
V-CABS:
V – Fill VACANCIES on the board of directors or on any of its committees
C – Fix director COMPENSATION, but it can fix other corporate executive’s
compensation
A – AMEND, adopt, or repeal bylaws
B – BYPASS the board of directors and directly submit any SAD LAMP (#1 above)
activity to the shareholders
S – Issuing or agreeing to buy back shares of STOCK
A corporation may not eliminate director liability or indemnify a director if the director’s activities were conducted with _____
A BIG DR:
A – ASSETS distributed to shareholders without paying corporate creditors (constructive fraud)
B – BAD faith conduct
I – INTENTIONAL misconduct, or a knowing violation of the law
G – Misconduct undertaken for personal GAIN (e.g., insider trading, or misappropriation
of a corporate opportunity)
D – Improper DIVIDEND to the detriment of corporate creditors
R – Improper REDEMPTION of corporate shares (b/c there was no surplus)
Minority shareholders can seek a judicial dissolution by showing the majority in control engaged in ____
ID FLOW:
I – ILLEGAL conduct by those in control
D – DIVERSION of corporate assets to those in control
F – FRAUDULENT conduct toward the minority L – LOOTING corporate assets
O – OPPRESSION against minority shareholder W – WASTE of corporate assets
