Corporations Basics

Question 1

What is the defining trait of a corporation?

Answer 1

Separation of ownership and control

Question 2

Who owns the corporation?

Answer 2

Shareholders

Question 3

Who controls the corporation?

Answer 3

The Board of Directors

Question 4

What are the 3 categories of corporations

Answer 4

1. Public v. Closely held
2. S-Corp v. C-corp
3. Benefit v. Non-profit v. Not for profit

Question 5

Public v. Closely held

Answer 5

Ask who owns. Are shares available to public generally or concentrated in a few individuals with no ready market for sale

Question 6

S-Corp v. C-corp

Answer 6

Difference in how taxed. C-Corps are the default and have a double tax whereby both the corporation and shareholders are taxed. S-Corps pass the income tax to the shareholders

Question 7

S-Corp Requirements

Answer 7

Tax applies only to individuals with shares less than 100. Business must have only one class of stock and be a domestic corporation

Question 8

Shareholder primacy norm

Answer 8

Goal of corporation is to maximize shareholder profit

Question 9

Benefit Corp

Answer 9

For profit, but takes other things into consideration

Question 10

Non profit

Answer 10

Behaves like a corporation but is for the public good

Question 11

Not for profit

Answer 11

Recreational

Question 12

Why do companies like Delaware?

Answer 12

Special court, update laws, flexibility, and tax friendly

Question 13

Choice of Law note

Answer 13

Will be applies if express, unless 1) chosen venue has no substantial relationship to parties or transaction and there is no reasonable basis for the choice

Or

2) application of the law of the chosen state would be contrary to the fundamental would be contrary to the fundamental policy of a state which has a greater interest

Question 14

Internal Affairs Doctrine

Answer 14

Local law of the state of incorporation will be applied to determine questions pertaining to the internal affairs of the corporation (Restatement of conflicts of law)

Question 15

What are internal affairs?

Answer 15

Election of directors
Appointment of officers
Adoption of bylaws
Issuance of shares
Preemptive rights
Meetings and voting
Shareholder review of records
Fiduciary duty

Question 16

The Board of Directors must act to . . .
They do not have to — —, but they must . . .

Answer 16

For the benefit of the shareholders
Maximize profit, act with their benefit in mind

Question 17

Incorporations: DGCL V. MBCA

Answer 17

DGCL: any person, singly or jointly, without regard to residence, may incorporate or organize by filing a CERTIFICATE OF ORGANIZATION with the division of corporations in the department of state

MBCA: one or more persons may act as the incorporation of a corporation by delivering ARTICLES OF INCORPORATION to the Secreatary of STate (or other relevant entity

Question 18

What is the name of the Charter in the DGCL V MBCA

Answer 18

DGCL: certificate of incorporation
MBCA: articles of incorporation

Question 19

Charter Requirements: DGCL

Answer 19

Name and address of corp, address of registered agent

Nature of business or purpose to be conducted

Number of shares and classes
Value of stock and statement of designations and powers
Name and mailing address of incorporations and their powers

Question 20

Charter Requirements: MBCA

Answer 20

Corporate name, number of shares, address of initial officer and registered agent, name and address of each incorporator

Question 21

What is the primary difference in charter requirements between the DGCL and MBCA?

Answer 21

Must state business purpose in DGCL, not have to under MBCA

Question 22

True or False: Directors are agents of the corporation

Answer 22

False

Question 23

True or False: Directors cannot take individual action in normal circumstances, only through the Board

Answer 23

True

Question 24

Organizational Meeting

Answer 24

Charter can name initial directors. If it doesn’t, the DGCL has the incorporators act to manage the affairs of the corporation and to perfect the organization, including adopting bylaws and electing directors

MBCA: if directors not named incorporators hold meeting to elset directors

Question 25

Written Consent: incorporation-DGCL

Answer 25

An action permitted to be taken at the organizational meeting may be taken without a meeting if each incorporator or director gives written consent

Question 26

True or False: a director/incorporator cannot take an action unless they meet with another

Answer 26

False. A director or incorporator can hold a meeting of one/with themselves

Question 27

What do bylaws do?

Answer 27

Govern the structure and operation of the corporation

Question 28

Bylaws: MBCA v. DGCL

Answer 28

MBCA: adopted by incorporators or board. CANNOT be inconsistent with articles of incorporation. Power to amend or repeal is SHARED by board and shareholders UNLESS reserved exclusively by shareholders DGCL: adopted, amended, or repealed by incorporator or initial board. Or, if before a corporation has released stock, the board of directors. After received payment for stock, power over bylaws is in voting shareholders. Bylaws CANNOT be in conflict with law or certificate of incorporation

Question 29

The business and affairs are . . . What sections of the DGCL and MBCA is this from, respectively?

Answer 29

Managed by the directors 141(a); 8.01(b)

Question 30

The Charter states the number of … They are elected at . . .

Answer 30

Directors The annual shareholder meeting

Question 31

Director Terms: DGCL v. MBCA

Answer 31

DGCL: hold office until successor elected or resign or remove early MBCA: terms expire at annual shareholder meeting

Question 32

Removal: DGCL V. MBCA

Answer 32

DGCL: remove any time with or without cause by majority of shares entitled to vote MBCA: shareholders may remove with or without cause UNLESS articles of incorporation provide that remove only with cause

Question 33

Vacancies: DGCL V. MBCA

Answer 33

DGCL: unless otherwise provided, majority of directors may fill MBCA: unless otherwise provided by articles of incorporation, shareholders or directors may fill

Question 34

Staggered Terms

Answer 34

Charter may provide that terms of directors are staggered; i.e. not every director is up for election every year

Question 35

Why would a corporation want to create staggered terms?

Answer 35

Helps protect against a hostile takeover

Question 36

If a board is staggered, directors may only . . .

Answer 36

Be removed for cause

Question 37

Directors take action at Board meetings. Under what circumstances may a director take an action outside a meeting?

Answer 37

Each director signs consent describing action to be taken

Question 38

Notice: MBCA

Answer 38

Regular meetings can be held without notice of date, time, place, or purpose. Special meetings need two days notice for date, time, and place, but need not describe the purpose

Question 39

Notice: DGCL

Answer 39

Majority of total number of directors make a quorum unless required otherwise by certificate of incorporation or bylaws. Vote of majority of directors present at a meeting with a quorum is an act of the board unless greater is required

Question 40

True or False: Shareholders appoint the officers

Answer 40

False. Directors appoint officers

Question 41

Piercing the corporate veil

Answer 41

Entity is mere instrumentality of individual, meaning we can impose liability on the individual for the actions of the corporation

Question 42

Piercing the corporate veil factors

Answer 42

Whether corporation was adequately capitalized Solvency Dividend payment Keeping of corporate records Effective function of officers and directors Did it have corporate formalities Did dominant shareholder siphon corporate funds Catch all

Question 43

True or False: the corporate veil cannot be pierced just because there is a single shareholder

Answer 43

True. We still have to look at the other factors

Question 44

Single entity theory

Answer 44

Exist as separate legal entities but are functionally a single entity

Question 45

If you created the entity, you cannot (Hint: beats the Hulk)

Answer 45

Pierce the veil