Corporations and LLC's - Ramsey Flashcards
What is the business judgment rule?
A presumption that a director’s decision may not be challenged if the director acted in good faith, with the care that an ordinarily prudent person would exercise in a like position, and in a manner the director reasonably believed to be in the best interest of the corporation. It will not protect a director who has a personal interest in a transaction.
What is the effect of an exculpatory provision?
A corporation’s articles of incorporation may limit or eliminate directors’ personal liability for money damages to the shareholders or corporation for actions taken. Exceptions: Director received a benefit he was not entitled, intentionally inflicted harm on the corporation or its shareholders, approved unlawful distributions, or intentional commitment of a crime.
What happens when the voting requirements set in the articles of incorporation and the bylaws conflict?
The articles of incorporation control.
A corporation is owned by its _____
The group in charge of management is the ______
Members of the board of directors are elected by ______
The board appoints people to carry out its policy. Who are they? _____
Shareholders
Board of directors
Shareholders
Officers
How do you form a corporation?
(1) Need an incorporator (person or entity) to execute articles and deliver to secretary of state.
(2) Articles of incorporation need: (a) Name of the corporation; (b) Name and address of each incorporator; (c) Registered agent and street address of the registered office; (d) Information regarding stock
(3) When the secretary of state’s office accepts the articles for filing, the corporation is formed.
What’s the first thing you do after forming a corporation?
Hold an organizational meeting where you appoint officers and adopt initial bylaws.
What’s an S corp?
A corporation form that avoids paying income tax at the corporate level.
S Corps have no more than 100 shareholders (all U.S. citizens or residents), one class of stock, and it’s not publicly traded.
What’s the liability for corporations?
Shareholders, directors, and officers are not vicariously liable for corporate debts. The corporation itself is liable.
When is a corporation liable for pre-incorporation contracts?
These occur when a promoter (person acting on behalf of a corporation not yet formed) enters into a contract on behalf of the not yet formed corporation. The corporation is liable ONLY if it adopts the contract.
The promoter is liable on pre-incorporation contracts until there is a novation. But remember, adoption makes the corporation liable too, but doesn’t relieve P of liability as well. Only novation does.
What is a preemptive right?
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. If the articles are silent, there are no pre-emptive rights.
