Corporations and LLCs Flashcards
Three requirements for articles of incorporation
- name of corporation
- names and addresses of incorporators, resident agent name and address,
- authorized state, number of shares per class, and any voting rights or preferences
Director limiting liability in articles?
May limit liability of directors in articles, unless
A. Intentionally inflicts harm on corporation,
B. intentionally violates criminal law
C. receives a financial benefit he was not entitled to
Effects of incorporation?
- Corporation is liable for corporate acts rather than owners, and
- It is doubly taxed (unless S corp formed)
What about failure to incorporate properly? good faith and bad faith attempt
- Bad faith attempt. joint and severally liability for person if
a. person actually knew articles had not been filed, and
b. person participated on corps behalf.
good faith. if no corp formed by law
A. de facto incorporation - individuals acting on behalf are not liable if there was good faith attempt to comply with statutory requirements,
b. corporation by estoppel - a third party who believes it was contracting with corp cannot later deny validity of crop.
Liability for preincorporation contract, ratification:
not liable unless
A. board of directors expressly adopts,
B. knowing acceptance or retention of contracts benefits
Liability of promoter?
Promoter is personally liable on contracts entered into on behalf of soon to be corp, even if corp ratifies, unless there is:
1. release by corp,
2. novation by all three parties.
Role of directors?
management of corp, ie
a. supervision, hiring, firing of officers
b. when to make distribtuions.
majority vote of board needed for most general decisions.
Voting requirements for board meeting?
A. Board can only act with a quorum.
B. unless by laws or articles say otherwise, majority vote of quorum needed to pass resolution.
C. board may act with unanimous written consent.
Notice requirements for board meeting?
notice of meeting generally not required. when it is:
special meeting - 2 days notice, with location, time, and date
if directors attend and vote at a special meeting, they waive any defect in the notice
What are the duties of directors of corps and members of LLC?
A. Duty of loyalty (business judgment rule)
B. Duty of care
What is the business judgment rule? (duty of care)
Director presumed to have acted in good faith, on an informed basis, with honest belief that action was in companys best interest.
party claiming breach of duty of care has burden of proof.
What is the duty of loyalty? <corp></corp>
Director must act in good faith, with a reasonable belief that what he does is in corps best interest.
business judgment does not apply to duty of loyalty. comes up in three ways
A. director is on both sides of transaction
B. competes with corp.
3. usurps corporate opportunity
What is a directors defenses to breach of duty of loyalty?
A. disinterested directors approve transaction
B. dirinterested shareholders approve it.
C. transaction established to have been fair to a corp according to circumstances at time.
a corporation is insolvent when (and no distributions allowed)?
corporation is not able to pay its debts as they become due in course of business (equity solvency test), or
corporations total assets are less than teh sum of its total liabilities (balance sheet test)
Shareholder removal of directors?
A. removal by vote - shareholder vote removes if # of votes for removal greater than number of votes against (unless cumulative voting, if directors gets enough votes that would have elected him), or
b. judicial removal: for fraud with respect to corp or shareholders, abuse of position, intentionally inflicting harm on corp, removal in corp best interests
When can you indemnify a director or officer in a suit?
A. prohibited - director liable for breach of loyalty, received a financial benefit not entitled to, liable to corp.
B. required - director successful on the merits
C. permitted - settlement, as long as director acted in good faith with a reasonable belief that operating on Comp best interest
Officer description (5 things)
A. directors hire and fire officers in their discretion (even if K says otherwise)
B. officer may hold more than one office
C. Powers generally given by bylaws
D. Agent of corp, with actual or at least apparent authority to bind
E. same fiduciary duty as directors (loyalty, care)
3 duty of majority shareholders
- disclose any known, material information if nondisclosure causes material loss to minority shareholders,
- deal fairly when purchasing minority shareholder interest
- burden of proof on fairness of process it employed and price it selected on purchasing majority shareholder
requirements of written notice of shareholder meetings
- more than 10 and less than 60 days before meeting
- time place and purpose of meeting.
object for defect notice at beginning, object for other matters when presented
shareholder can vote w/o meeting by unanimous written consent
Who can vote on a shareholder resolution?
A. record owner on record date
Deceased shareholders executor
shareolders valid proxy
What is required for shareholder resolution to pass?
A. a quorum present, AND
B. more votes for the resolution, and again.
Quorum is present is majority of outstanding shares are present.
Shareholder voting by proxy:
Shareholders may vote by proxy
Proxxies are appointed by signing an appointment form or making a verifiable electornic transmission.
it is revocable unless it explicitly states it is irrevocable and is coupled with an interest
Piercing the corporate veil
P must show:
A. Shareholders abused privilege of incorporating
B. fairness requires holding them liable
ALMOST ALWAYS ONLY FOR CLOSE CORPS
Shareholder lawsuits? 2
- direct - breach of duty injured shareholder personally
- derivative - injury caused to corp and shareholder trying to enforce rights
Derivative lawsuit standing and prior action
Derivative standing:
A. shareholder at time of omission,
B. Adequately represents corps interests,
C. Filed a written demand.
Must wait 90 days after making demand, unless:
A. Demand rejected
B. irreparable injury will happen in that period,
C. Waiting is pointless (directors are defendants)
3 groups that can dismiss derivative lawsuit
A. court appointed panel of disinterested persons
B. majority vote of independent directors constituting a quorum
C. majority vote of committed of at least two indepdneent directors appointed by a majority of indpednent directors present at a meeting
Shareholders demand to inspect records
Shareholder must state with reasonable particularity:
A. purpose,
B. records desired,
C. direct connection between the two
What are the four fundamental changes and their voting requirements?
A. Amendment of articles, Merger, selling all assets, dissolution of corp, dissolution for oppression in close cases.
shareholders entitled to vote receive notice, absolute majority of shares entitled to vote approve, amended articles delivered to SoS
Merger requirements
Agreement of board and shareholders of both corps, unless subsidiary merges with parent corp that owns more than 90% of it
3 dissenters rights?
A. file notice with company and demand payment
2. do not vot eon proposed change
3. make a demand
LLC member liability
members are not liable unless,
A. court pierces LLC veil
B. creditors do not receive notice of windup
Dissolution of LLC
dissociation does not automatically trigger windup and dissolution.
All members must agree to disollution.
disassociated members have rights in distributions but lose management rights
Requirements of a stock subscription agreement
A. signed writing
B. Definite number of shares
C. Must state a price
Issuance of a dividend requirements
A. board may issue dividends whenever it wants unless corp is insolvent.
Federal security law what must be proven for a 10b-5 claim? (Security fraud)
A. manipulation or deception. Materiality. in connection with the transaction, intent, instrumentality.
Private plaintiffs must show standing, reliance, and damages.
What can a corp recover from officer/director/larger shareholder in a 16b claim?
a corp may recover:
A. a profit made,
B. by an officer, director, or lagrge shareholder,
C. from buying and selling stock,
D. within a 6 month period.
