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MEE - Business Associations > Corporations > Flashcards

Corporations Flashcards

1
Q

What is a corporation?

A

A legal entity that is separate from its owners and provides its owners with limited liability.

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2
Q

Where are the management rights centralized in a corporation?

A

board of directors, who delegate day to day management to corporate officers

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3
Q

How may shareholders in a corp transfer their ownership (shares)?

A

Freely, unless prohibited by articles or bylaws

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4
Q

De Jure Corporation

A

corp formed in accordance with applicable laws

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5
Q

When is a corp formed?

A

when articles of organization are filed w the state

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6
Q

What is a Promoter

A

one who acts on behalf of a not-yet-formed corp to get funding

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7
Q

What liability does a promoter have

A

personal liability for the Ks they enter into on behalf of the corp, and remain liable after formation

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8
Q

What two ways can a promoter be protected from personal liability

A

novation

indemnification

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9
Q

Will a corp be liable for pre-incorporation Ks entered into by promoters

A

no, unless adopted via novation

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10
Q

What is an ultra vires act

A

when a corp acts outside of its stated purpose in the articles

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11
Q

What are the consequences of an ultra vires act

A

shareholder suit to enjoin the action
corp suit against officer/director responsible
state action to dissolve

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12
Q

Requirements of a De Facto Corp

A
  • Entity could have legally became a corp
  • Entity made a GF effort to comply w inc. laws
  • entity acts/acted like corp
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13
Q

What is “piercing the corp veil”?

A

doctrine that allows shareholders, officers, directions, etc. to be held personally liable

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14
Q

What acts justify veil piercing?

A

Ignoring corp formalities (“alter ego”)
Undercapitalization
Fraud or illegality

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15
Q

What are stocks & their legal effect

A

instrument that represents investment in the corp; holders become part owners of corp

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16
Q

What are authorized shares

A

the max number of shares a corp may issue (as stated in articles)

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17
Q

what are issued/outstanding shares

A

shares that have been sold to investors

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18
Q

what are reacquired shares

A

shares that have been bought back by the corp (no longer issued/outstanding)

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19
Q

Dividend Rights in Shareholders

A

SH have no rights to dividends, these are distributed at discretion of board

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20
Q

What components of a corp do SHs have authority over

A 
directors (remove and elect)
bylaws (can adopt/amend/repeal)
fundamental changes (SH must approve)
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21
Q

What are a SHs inspection rights?

A

SH may inspect the corps books and records for any proper purpose upon written notice

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22
Q

When is a SHs purpose proper for inspecting the corps records and books?

A

when it is reasonably related to a person’s interests as shareholder

23
Q

What notice is required of a SH before inspection

A

5 days written notice & must state the “proper purpose”

24
Q

Corp Annual Meeting rule

A

must hold (and give notice of) annual meetings to elect directors and conduct other special matters

25
Q

What is a quorum

A

1/2 plus 1

26
Q

How does quorum effect voting

A

must have quorum present to allow vote to occur

27
Q

What vote is needed to win (unless articles say otherwise)

A

majority

28
Q

What is cumulative voting and when is it applicable

A

each share can cast as many votes as there are vacancies and multiple can be cast for one seat (e.g., five vacancies, each share gets five votes)
- applies to BoD elections

29
Q

Two types of shareholder lawsuits

A

direct

derivative

30
Q

direct SH lawsuit

A

corp/officer/director caused harm to a particular SH

31
Q

derivative SH lawsuit

A

SH sues to enforce the corp’s rights when the corp has a cause of action but fails to pursue it (e.g., director breaches a duty)

32
Q

who has standing to bring a SH derivative suit

A

SHs at the time of the alleged wrong

33
Q

Recovery of a derivate suit

A

goes to corp but SH can recover legal expenses

34
Q

Written demand requirement for a derivative suit

A 
SH must make written demand
90 days before filing suit
Unless:
- corp already rejected SH demand; or
- irreparable injury to corp if delay
35
Q

Business Judgment Rule

A

courts will not second guess a poor or erroneous business decision made by a director/officer that was made in good faith, reasonable, and reasonably believed to be in the best interests of the corp

*used to determine if director breached duty of care owed to corp

36
Q

Duty of Loyalty of Directors/Officers and 2 ways it arises

A

prohibits from profiting at the expense of the corp

  • conflicts of interest
  • usurping a business opportunity
37
Q

When will a D/O with a potential conflict of interest be granted “safe harbour” and not be personally liable?

A

if either:

  • transaction was fair to the corp
  • approval (after material facts provided) by:
    a. disinterested SHs
    b. maj of disinterested Bd Members
38
Q

What is a merger

A

when two or more corps blend into a new one

39
Q

What are the requirements for approval of a merger

A
  • maj approval of board

- maj approval of SHs (unless “no sig change” to surviving corp)

40
Q

What assets and liabilities does a “surviving corp” have after merger?

A

owns all property and assumes all liabilities of prior separate entities

41
Q

Short form merger

A

parent corp owns 90%+ stock of subsidiary, can merge without SH approval

42
Q

Dissenters’ rights in merger

A
  • can challenge the merger

- can demand payment for their shares at FMV (must give notice)

43
Q

dissolution

A

termination of the corp’s existence

44
Q

effect of dissolution

A

corp continues to exist while it winds up and liquidates its affairs, but no other business can be carried out

45
Q

voluntary dissolution

A

considered a fundamental change and thus requires Bd & SH approval

46
Q

Judicial Dissolution by SHs is proper when…

A
  • deadlock among BoD/SH threatens irreparable harm
  • corp abandoned business and failed to dissolve
  • corps assets are wasted/misused
47
Q

What is an LLC

A

an entity that allows for taxation of the owners as if it was a partnership, but has ltd liability similar to that of a corp

48
Q

When is an LLC formed

A

filing of certificate of formation with the state

49
Q

Member Management of LLC is

A

presumed

50
Q

An LLC operating agreement is

A

like its constitution - governs basically anything

51
Q

Distribution rights to profits in an LLC

A

operating agreement will govern how profits are distributed

52
Q

Members’ duties in a member managed llc

A

care and loyalty, owed to each other and the llc

good faith and fair dealing

53
Q

members’ duties in a manager managed llc

A

only managers owe duty of loyalty and care

good faith and fair dealing

MEE - Business Associations (3 decks)

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