Corporations

Question 1

Article of Incorporation

Answer 1

Must be filed with the secretary of state

1. a corporate name
2. the number of shares the corp is authorized to use
3. address and county of the corp’s initial registered office and the name of its initial registered agent
4. name and address of each incorporator AND
5. mailing address of the initial principal office of the corp

Question 2

Organizational Meeting

Answer 2

If initial directors are named in the article of incorporation, they must hold an organizational meeting at the call of a majority of the directors. If initial directors are not named, then the incorporators must hold an organizational meeting at the call of a majority of the incorporators to elect directors and complete the organization of the corp or elect a board of directors who will then complete the organization

Question 3

Bylaws

Answer 3

Internal rules and regulations enacted by the corp to govern its actions and its relation to its shareholders, directors, and officers. The board of directors have the power to alter, amend, or repeal the bylaws unless the articles of incorporation give that power solely to the shareholders

Question 4

Incorporation by Estoppel

Answer 4

If a creditor always dealt with the principals as if they were a corp, he will be estopped from later alleging that the corp is defective if that would unjustly harm the principals.

Question 5

Ultra Vires Act

Answer 5

A corp cannot be obligated to undertake a contract or activity that is beyond the scope of its power as described in the articles or bylaws. Little effect today because a corporation is authorized to engage in all legal activities.

Question 6

Piercing the Corporate Veil

Answer 6

A corp will be a separate and legal entity unless the entity is used to commit fraud or to achieve inequitable results. To justify piercing the veil, the P must show that the owner abused the corp form by disregarding the separateness of legal entities by commingling on an interchangeable or joint basis or confusing the otherwise separate properties, record, or control.

Question 7

Preincorporation Transactions

Answer 7

Promoter enters into consensual agreement with 3rd party. The promoter is personally liable on any contract he entered into on behalf of the yet nonexistent corp, absent contrary intent of the parties, unless the corp expressly or implicitly adopts the contract after formation. Personal liability continues after corp is formed, unless there is a novation or an agreement to release liability.

Question 8

Promoter

Answer 8

One who causes a corp to be formed, organized, and financed. They stand in fiduciary relationship to the corp and stockholders. They have a duty to avoid self-dealing concerning any assets they sell to the corp.

Question 9

Shareholder Preemptive Rights

Answer 9

Rights of existing shareholders to acquire unissued or treasury shares in the corp, or options or rights in proportion to their holdings of the original share. These rights prevent the dilution of a shareholder’s voting interest. In GA, shareholders generally have no preemptive rights except to the extent provided in the article of incorporation.

Question 10

Dividends and Distributions

Answer 10

Shareholder has no inherent right to be paid a dividend. The board of directors has discretion to decide whether and when to declare a dividend, subject to restrictions in the articles of incorporation. But the directors cannot declare a dividend if the corp wouldn’t be able to pay its debts or the corp’s total assets would be less than the sum of liabilities plus the amount the corp would need upon dissolution to satisfy the preferential rights of shareholders whose preferences are superior to those receiving distribution.

Question 11

Management and Control

Answer 11

Unless the articles or bylaws provide otherwise, the directors elect the officers of the corp, who make the day-to-day management decisions. Shareholders must approve fundamental changes such as mergers, amendments of the articles of incorporation, sale of all or most assets, and dissolution.

Question 12

Shareholder RIghts

Answer 12

1. elect and remove directors
2. amend the bylaws AND
3. approve fundamental changes in the corp, such as amend the articles of incorporation, merger, sales of substantially all assets, or dissolution.

Question 13

Shareholder Action

Answer 13

Taken at a meeting. A meeting is to be held annually at a time stated in or fixed by the bylaws.

Special meets may be called by the directors or by persons authorized to do so by the articles or bylaws or upon the written application of the holders of 25% of the shares entitled to vote.

Question 14

Quorum

Answer 14

A majority of the votes entitled to be cast on the matter by the voting group. Shares entitled to vote as separate voting group may take action on a matter at a meeting only if a quorum of those shares exist with respect to that matter.

Question 15

Proxy

Answer 15

Every shareholder who is entitled to vote may do so by proxy. Unless coupled with an interest, a proxy is freely revocable by the shareholder unless the instrument specifically states otherwise.

Question 16

Voting Trust

Answer 16

Used to assure that the shareholders will not become deadlocked or that control will be exercised fairly by appointing an equal number of trustees to represent each faction of the shareholders and neutral trustees to resolve deadlocks. Involves a written agreement effecting a transfer of legal title to shares to a trustee who votes them for a specified period according to the trust terms.

Question 17

Voting Agreements

Answer 17

Two or more shareholders provide for the manner in which their shares will be voted. Absent fraud or other illegal object, they are generally considered valid and are specifically enforceable. In GA, these agreements cannot exceed 20 years in duration.

Question 18

Directors

Answer 18

GA only required one director, but can be specified in articles or bylaws.

Elected at annual meeting for one year terms.

Question 19

Straight Voting

Answer 19

Each share has one vote for each director. In GA, unless otherwise provided in the articles, directors are elected by a plurality of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present.

Question 20

Cumulation

Answer 20

in GA, shareholders do not have a right to cumulate their votes for directors unless the articles provide for such right. The formula for cumulation is (shares voting / (directors to be elected + 1)) + 1

Question 21

Removal of Directors

Answer 21

Entire board or any individual may be removed without or with cause by a majority of the shares entitled to vote in the election of directors, unless the article or bylaws only allow removal for cause. But a director elected by a particular class may be removed only by a majority of the shares entitled to vote in the class that elected them.

Question 22

Notice for Meetings

Answer 22

Unless the article or bylaws state otherwise, no notice is required for regular meetings. Special meetings may be held with 2 days notice to the directors. Once a quorum of directors is present, the vote of a majority of the directors present at a meeting constitutes an act of the board, unless a statute, bylaw, or the articles states otherwise.

Question 23

Duty of Care

Answer 23

Directors, officers, and incorporators must perform their duties in good faith and in a manner reasonably believed to be in the best interests of the corporation, and with such case as an ordinarily prudent person in a like position would use under similar circumstances.

Question 24

Business Judgment Rule

Answer 24

Shields directors from liability and insulates board decisions from review. Creates a rebuttable presumption that directors are honest and well-meaning and acting through decisions that are informed and rationally undertaken in good faith.

Question 25

Conflict of Interest

Answer 25

Constitutes a breach of the duty of loyalty where the individual

1. has business dealings with the corp
2. takes advantage of a corp opportunity or
3. enters into competition with the corp

Question 26

Corporate Opportunity

Answer 26

The corp has an interest or a reasonable expectancy in the opportunity. Dealing with certain customers or an ongoing relationship with no finite end are not business opportunities. Requires a showing that the corp was financially able to undertake the opportunity.

Question 27

Independent Business

Answer 27

Officers and directors may engage in independent business, but if it competes with the corp, equitable limitations will apply. Not necessarily a breach if director acts in good faith.

Question 28

Duties of Supervision

Answer 28

Director or officer can be liable for negligently selecting or supervising subordinates. Not liable for the negligence of a person on the same level of responsibility unless he participated in the negligence or was negligent in not discovering and correcting the problem.

Question 29

Improper Distribution and Declaration of Dividends

Answer 29

A director who votes for or assents to a distribution of dividends is personally liable to the corp for the amount of the distribution that exceeds what could have been distributed lawfully.

Exception: director will not be liable if he relied and acted reasonably and in good faith upon corporate financial records.

Question 30

Rule 10b-5

Answer 30

Prohibits

1. use of any divide, scheme, or artifice to defraud
2. omission and misstatements of material fact AND
3. any act, practice, or course of business that operates as a fraud or deceit

Question 31

Limits on Liability

Answer 31

Articles can include a provision eliminating or limiting liability of directors or shareholders for damages for their actions or failures to take action as a director in certain circumstances. Cannot be applied retroactively.

Doesn’t include liability for:

1. any appropriation of a business opportunity
2. acts or omissions that involve intentional misconduct or a knowing violation of law
3. unlawful distributions OR
4. any transaction from which the director received an improper personal benefits

Question 32

Indemnification

Answer 32

A GA corporation may indemnify an individual who is a party to a proceeding because he is or was a director against liability incurred in the proceeding if:

1. he conducted himself in good faith AND
2. he reasonably believed:
   (a) if acting in his official capacity, that such conduct was in the best interest of the corp
   (b) in all other cases, that such conduct was a least not opposed to the best interests of the corp AND
   (c) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful

Question 33

Duties of Controlling Shareholders

Answer 33

Majority or controlling shareholders have a fiduciary duty to refrain from exercising their control to obtain a benefit from the corp not shared proportionally with the minority shareholders.

Question 34

Dissolution

Answer 34

Extinguishes corp existence and requires affirmative action by the corp itself or by the courts, and doesn’t occur because of bankruptcy or inactivity. A corp in dissolution must notify all known creditors in writing of the dissolution proceeding any time after the filing of the notice of intent to dissolve.

Question 35

Professional Corporations

Answer 35

Form by professional service providers. The articles must state that the purpose of the corp is to practice the profession named in the articles and that the corp elects to be governed by Chapter 7. Shares in a professional corp may be held by a person licensed to practice the profession.

Question 36

Professional Associations

Answer 36

Any two or more people who are licensed to practice a profession in GA may form a professional association under Chapter 10.