Corporations [Highly Tested Rules]

Question 1

What is required to form a corporation?

Answer 1

Forming a corporation requires:
1. Person: One or more persons (incorporators) must undertake to form the corporation by executing the articles of incorporation and delivering them to the Secretary of State
2. Paper: The articles of incorporation are a contract between the corporation and its shareholders, and a contract between the corporation and the state
3. Act: To complete formation, the incorporators will have notarized articles delivered to the Secretary of State and pay required fees; if the Secretary of State’s office accepts the articles for filing, it is conclusive proof of valid formation

NOTE: Corporate existence begins upon the Secretary of State’s filing of the articles of incorporation

Question 2

What must be the articles of incorporation include?

Answer 2

The articles of incorporation must include:
1. the name of the corporation, which cannot be similar to existing names, and must include one of the following words (or an abbreviation): Corporation, company, incorporated, or limited (corp., co., inc., ltd.);
2. the name and address of each incorporator;
3. the name of a registered agent, and the street address of the registered office (which must be in the state);
4. the number of authorized shares;
5. if the corporation has different classes of stock or series within a class, the number of authorized shares per class and a distinguishing designation for each class; AND
6. information on the voting rights, preferences and limitations of each class of stock

Duration: If there is no statement of duration in the articles, perpetual existence is presumed

Statement of Purpose: If a statement of business purposes is not included, the MBCA presumes that a corporation is formed to conduct any lawful business

Question 3

What are the consequences of failing to form a de jure corporation?

Answer 3

As a general rule, if a corporation is not validly formed, the incorporators will be personally liable for the business’s obligations (essentially a partnership was formed instead) unless either (1) the de facto corporation or (2) corporation by estoppel doctrines apply

Question 4

What is a de facto corporation?

Answer 4

The de facto corporation doctrine is an exception to the general rule that incorporators are personally liable for the obligations of an invalidly formed corporation
* If the de facto corporation doctrine applies, the business is treated as a corporation for all purposes except in an action by the state (a “quo warranto” action)

Question 5

What is required to show a de facto corporation?

Answer 5

A de facto corporation exists if: (1) there is a relevant incorporation statute (every state has one); (2) the incorporators made a good faith, colorable attempt to comply with the incorporation statute; and (3) there has been an exercise of corporate privileges, meaning the incorporators were acting as though they formed a de jure corporation

NOTE: Only a person who was UNAWARE that the corporation was not validly formed may assert the de facto corporation doctrine as a defense

Question 6

What is corporation by estoppel?

Answer 6

Under the corporation by estoppel doctrine, any person or entity who has dealt with the business as if it were a corporation will be estopped from denying the corporation’s existence
* The doctrine will also estop the improperly formed business from avoiding liability by denying its valid existence
* Like the de facto corporation doctrine, corporation by estoppel may only be asserted by a person who was UNAWARE that the corporation was not validly formed

NOTE: The corporation by estoppel doctrine applies only in CONTRACT cases

Question 7

What is a promotor?

Answer 7

A promoter is a person acting on behalf of a corporation that has not yet been formed
* Before a corporation is formed, promoters procure commitments for capital and other instrumentalities that will be used by the corporation after its formation
* In so doing, promoters may enter into a contract on behalf of the corporation not yet formed

Question 8

What does a promoter’s fiduciary duty to the corporation require?

Answer 8

A promoter’s fiduciary duty to the corporation requires full disclosure and good faith
* A promoter who profits by selling property to the corporation may be liable for his profit unless all material facts of the transaction were disclosed
* If the transaction is disclosed to, and approved by, an independent board of directors, the promoter has met his duty and will not be liable for his profits
* If the board is not completely independent, the promoter will still NOT be liable for his profits if the subscribers knew of the transaction at the time they subscribed or unanimously ratified the transaction after full disclosure

NOTE: Promoters may always be liable if plaintiffs can show that they were damaged by the promoters’ fraudulent misrepresentations or fraudulent failure to disclose all material facts

Question 9

Is a corporation liable for pre-incorporation contracts?

Answer 9

A corporation does not exist prior to incorporation and is not bound on a pre-incorporation contract entered into by a promoter in the corporate name unless the corporation expressly or impliedly adopts the contract
1. Express Adoption: The board takes an action adopting the contract
2. Implied Adoption: The corporation accepts a benefit of the contract

Question 10

Is a promoter liable for pre-incorporation contracts?

Answer 10

A promoter is personally liable under a pre-incorporation contract and remains liable even after the contract is adopted by the corporation unless (1) there is a subsequent novation among the promoter, the corporation and the other contract party agreeing to release the promoter from liability and substitute the corporation for the promoter under the contract or (2) the agreement expressly relieves the promoter of liability (in which case, there is no contract but, rather, a revocable offer to the proposed corporation)

NOTE: A promoter who is held personally liable on a pre-incorporation contract may have a right to reimbursement from the corporation to the extent of any benefits received by the corporation

Question 11

What is an ultra vires act?

Answer 11

If a corporation includes a narrow statement of business purpose in its articles, it may not undertake activities unrelated to the stated business purpose–an ultra vires act is one that is outside the scope of the articles

Question 12

What is the effect of ultra vires act under common law?

Answer 12

At common law, an ultra vires contract could be voided on the grounds of lack of corporate capacity

Question 13

What is the effect of ultra vires act under the MBCA?

Answer 13

Under the MBCA, ultra vires contracts are valid and generally enforceable

Today, the ultra vires nature of an act is relevant in three situations:
* a shareholder may sue the corporation to enjoin a proposed ultra vires act (but given the equitable nature of injunctive relief, a court is unlikely to grant injunctive relief where the transaction involved an innocent party)
* the corporation may sue an officer or director for damages for approving an ultra vires act
* the state may bring an action to dissolve a corporation for committing an ultra vires act

Question 14

What is a shareholder management agreement?

Answer 14

Generally, shareholders have no direct control in management of the corporation; however, the MBCA allows shareholders in a close corporation to dispense with the board and vest management power directly in the shareholders by setting up a shareholder management agreement either:
1. in the articles or bylaws and approved by all shareholders; OR
2. by unanimous written consent of all shareholders

NOTE: The existence of a shareholder management agreement should be conspicuously noted on the front and back of the stock certificates; however, failure to do so does NOT affect the validity of the agreement

Question 15

When may a shareholder vote by proxy?

Answer 15

A shareholder of record may vote their shares at a shareholders’ meeting without physically attending the meeting by a proxy that is:
1. in writing;
2. signed by the shareholder of record (email suffices if the sender can be identified);
3. directed to the corporate secretary; AND
4. authorizes another to vote the shares

Question 16

When is a proxy revocable?

Answer 16

A proxy is generally revocable by the shareholder, and may be revoked:
1. by the shareholder attending the meeting and voting their shares;
2. in writing delivered to the corporate secretary; OR
3. by subsequent appointment of another proxy

Question 17

When is a proxy irrevocable?

Answer 17

A proxy will be irrevocable only if the proxy (1) states that it is irrevocable and (2) is coupled with an interest or given as security

Question 18

What is a voting trust?

Answer 18

A voting trust is a written agreement of shareholders pursuant to which all shares of the parties to the agreement are transferred to a trustee, who votes the shares and distributes any dividends in accordance with the terms of the agreement
* A voting trust is only valid for 10 years unless extended by agreement of the parties (but the most recent version of the MBCA eliminated this 10-year limit)
* A voting trust may be specifically enforced

Question 19

What are the requirements for creating a voting trust?

Answer 19

The requirements for creating a voting trust are:
1. a written trust agreement, controlling how the shares will be voted, is entered into by the applicable shareholders;
2. a copy of the agreement (including names and addresses of the beneficial owners) is given to the corporation;
3. legal title to the beneficial owners’ shares is transferred to the trustee; AND
4. the beneficial owners receive trust certificates and retain all shareholder rights except voting rights

Question 20

What is a voting agreement?

Answer 20

Rather than create a voting trust, shareholders can enter into voting agreements providing for how they will vote their shares
* A valid voting agreement must be in writing and signed by the parties, but it does NOT need to be delivered to the corporation

Voting agreements may have a perpetual duration
* States are split as to whether voting agreements are specifically enforceable

Question 21

When may a court pierce the corporate veil?

Answer 21

A court may pierce the corporate veil and hold shareholders personally liable for the corporation’s debts when (1) the shareholders abused the privilege of incorporating and (2) fairness requires holding them liable
* Most courts will hold only ACTIVE shareholders liable

NOTE: Courts may be more willing to pierce the corporate veil for tort victims than for contract claimants because parties who contracted with the corporation had an opportunity to perform diligence whereas a tort victim did not voluntarily choose to transact with the corporation and did not knowingly assume the risk of limited liability

Question 22

What are scenarios justifying veil piercing?

Answer 22

A court will often pierce the corporate veil if:
1. the shareholders ignore corporate formalities such that the corporation may be considered the “alter ego” or “mere instrumentality” of the shareholders, and some basic injustice results;
2. the corporation is inadequately capitalized at the time of formation to reasonably cover prospective liabilities; OR
3. necessary to prevent fraud or to prevent an individual shareholder from using the entity to avoid his existing obligations

Question 23

What is a direct action?

Answer 23

A shareholder may bring a direct action for a personal injury or breach of a fiduciary duty owed to that shareholder, as opposed to the corporation generally
* In a direct action, any recovery is for the benefit of the individual shareholder

Question 24

What is a derivative action?

Answer 24

In a derivative action, a shareholder sues to enforce the corporation’s claim, not their own personal claim
* In a derivative action, the corporation receives any damages recovered by a prevailing shareholder-plaintiff
* But a prevailing shareholder-plaintiff may recover costs and attorneys’ fees

Question 25

What is required to commence and maintain a derivative action?

Answer 25

To commence and maintain a derivative action:
1. the shareholder must be a shareholder at the time the corporation’s claim arose;
2. the shareholder must fairly and adequately represent the corporation; AND
3. under the MBCA, the shareholder must first make a written demand on the corporation to take suitable action and wait until 90 days have elapsed from the date of demand to commence suit unless (1) the shareholder received earlier notice that the corporation has rejected the demand or (2) irreparable injury to the corporation would result by waiting 90 days
> NOTE: In some states, shareholders are not required to make a demand if it would be futile

Question 26

What are the notice requirements for board meetings?

Answer 26

A board of directors may act in regular or special meetings:
* Regular Meetings: No notice is required
* Special Meetings: At least two days’ written notice of the date, time and place of the meeting is required

Question 27

What is the effect of failing to give requisite notice of a board meeting?

Answer 27

Failure to give required notice results in the actions taken at the meeting being voidable (and perhaps even void) unless the directors who did not receive notice waive the defect (1) in writing anytime or (2) by attending the meeting and not objecting at the outset of the meeting

Question 28

What is the quorum requirement for board meetings?

Answer 28

There must be a quorum of directors in attendance at any board meeting, which is a majority of all directors unless the bylaws provide otherwise (but a quorum can NEVER be fewer than one-third of all directors)
* A quorum of the board can be “broken” if one or more directors leave the meeting

Question 29

When is a director presumed to concur with board action?

Answer 29

A director is presumed to concur with board action unless his or her dissent or abstention is:
1. noted in the minutes of the meeting;
2. delivered in writing to the presiding officer at the meeting; OR
3. delivered in writing to the corporation immediately after the meeting

NOTE: Of course, a director cannot dissent if they voted for the resolution at issue at the meeting

Question 30

What is the duty of care?

Answer 30

Directors and officers owe the corporation a duty of care, which requires them to discharge their duties with the degree of care that an ordinarily prudent person would exercise in a like position

Question 31

What is the business judgment rule?

Answer 31

Directors and officers who comply with the business judgment rule will not be liable for corporate decisions that, in hindsight, turn out to be erroneous

Under the business judgment rule, a court will not second-guess a business decision if it:
1. was informed;
2. was made in good faith;
3. was made without conflicts of interest; AND
4. had a rational basis

Question 32

When may directors and officers rely on information prepared or presented by others?

Answer 32

In discharging their fiduciary duties, directors and officers are entitled to rely on information, opinions, reports or statements (including financial statements) prepared or presented by:
1. corporate officers or employees whom they reasonably believe to be reliable and competent;
2. legal counsel, accountants or other representatives as to matters they reasonably believe are within the professional competence of such persons; OR
3. a committee of the board if they reasonably believe the committee merits confidence (and for directors, the director is not a member)

Question 33

What is the duty of loyalty?

Answer 33

Directors and officers owe the corporation a duty of loyalty, which required them to act in good faith and with a reasonable belief that they are acting in the best interests of the corporation

Question 34

What is a conflicting interest transaction?

Answer 34

A director or officer has a conflicting interest with respect to a transaction (or proposed transaction) if the director or officer knows that they or one of their family members:
1. is a party to the transaction;
2. has a beneficial financial interest in, or is so closely linked to, the transaction that the interest would reasonably be expected to influence their judgment with respect thereto; OR
3. is a director, general partner, agent or employee of another entity with whom the corporation is transacting business, and the transaction is of such importance to the corporation that it would in normal course of business be brought before the board

Question 35

When can a conflicting interest transaction be upheld?

Answer 35

A conflicting interest transaction will NOT be enjoined or give rise to an award of damages if:
1. the transaction was approved by a majority of the directors (but at least two) without a conflicting interest after all material facts have been disclosed to the board;
2. the transaction was approved by a majority of the votes entitled to be cast by shareholders without a conflicting interest after all material facts have been disclosed to the shareholders (notice of the meeting must describe the conflicting interest transaction); OR
3. the transaction was fair to the corporation, considering factors such as (i) the adequacy of the consideration, (ii) the corporation’s need to enter into the transaction, (iii) the financial position of the corporation, and (iv) the availability of alternatives

Question 36

May directors and officers compete with the corporation?

Answer 36

Directors and officers may engage in unrelated businesses, but engaging in directly competing businesses raises serious duty of loyalty concerns

Question 37

What is usurpation of a corporate opportunity?

Answer 37

The duty of loyalty prohibits directors and officers from diverting a business opportunity from their corporation to themselves without first giving their corporation an opportunity to act (i.e., usurping a corporate opportunity)

Question 38

What is a “corporate opportunity”?

Answer 38

A “corporate opportunity” is any opportunity in which the corporation would have an interest or expectancy
* The closer the opportunity is to the corporation’s line of business, the more likely a court will find that it is a corporate opportunity

Question 39

When may a director or officer pursue a corporate opportunity?

Answer 39

A director/officer may only pursue a corporate opportunity if they (1) first present the opportunity to the corporation’s board of directors and (2) the board rejects the opportunity
* The corporation’s lack of financial ability to take advantage of the opportunity is not a defense

Question 40

When is a corporation prohibited from indemnifying a director or officer?

Answer 40

A corporation cannot indemnify a director or officer who is (1) held liable to the corporation or (2) held to have received an improper benefit

Question 41

When must a corporation indemnify a director or officer?

Answer 41

Unless limited by the articles, a corporation must indemnify a director or officer who was successful in defending a proceeding on the merits or otherwise against the director or officer for reasonable expenses, including attorneys’ fees, incurred in connection with the proceeding

Question 42

When may a corporation indemnify a director or officer?

Answer 42

A corporation may indemnify a director in situations where indemnification is neither mandatory nor prohibited; to indemnify a director who was unsuccessful in defending a suit against them, the director must show (1) he acted in good faith and (2) believed his conduct was (a) in the best interests of the corporation (when the conduct at issue was within the director’s official capacity), (b) not opposed to the best interests of the corporation (when the conduct at issue was NOT within the director’s official capacity) or (c) not unlawful

Question 43

Who determines whether to indemnify a director or officer?

Answer 43

Generally the determination whether to indemnify is to be made by a disinterested majority of the board, or if there is not a disinterested quorum, by a majority of a disinterested committee or by independent legal counsel
* The shareholders may also make this determination, but the shares of the director or officer seeking indemnification are not counted

Question 44

When must shareholders be notified of shareholders’ meetings?

Answer 44

Notice of shareholders’ meetings must be made in writing (fax or email suffices) to every shareholder entitled to vote within 10-60 days before the meeting

Question 45

What must notice of a shareholders’ meeting contain?

Answer 45

Notice of shareholders’ meetings must state the date, time and place of the meeting
* For special meetings, the notice must also state the purpose because the shareholders cannot take any action at the meeting that is not listed in the purpose

Question 46

What quorum is required for a vote of the shareholders?

Answer 46

The general rule is that a quorum consists of a majority of outstanding shares entitled to vote, unless the articles or bylaws require a greater number
* Unlike a board quorum, a shareholder quorum will NOT be lost if people leave the meeting

Question 47

When will shareholders be deemed to have approved a matter?

Answer 47

If a quorum is present, generally, shareholders will be deemed to have approved a matter if the votes cast in favor exceed the votes cast against the matter, unless the articles or bylaws require a greater proportion

Question 48

What types of distributions can a corporation make to its shareholders?

Answer 48

Distributions are payments by a corporation to its shareholders, which can take the form of, among other things:
* Dividends
* Repurchases of shares (a voluntary sale of a shareholder’s stock to the corporation)
* Redemptions of shares (a forced sale of a shareholder’s stock to the corporation)
* Distributions of assets upon liquidation

Question 49

What are limitations on distributions?

Answer 49

TRADITIONAL VIEW
Traditionally, a corporation’s board of directors could NOT use stated capital (the aggregate par value of issued and outstanding shares) to fund distributions, but they COULD fund a distribution with:
1. earned surplus (earnings minus losses minus distributions previously paid); OR
2. capital surplus (payments in excess of par value received for issuances of par value stock plus amounts allocated to capital surplus for issuances of no-par stock), if the shareholders are informed

MODERN VIEW
The modern view does NOT limit which funds can be used for distributions but, rather, prohibits a corporation from making a distribution if, after giving effect to the distribution, either:
1. the corporation would not be able to pay its debts as they become due in the ordinary course of business; OR
2. the corporation would be rendered “balance sheet” insolvent

Question 50

When is a director liable for an unlawful distribution?

Answer 50

A director who votes for or assents to an unlawful distribution is personally liable to the corporation for the amount of the distribution that exceeds what could have been properly distributed

Question 51

What is a director’s “good faith reliance defense” to unlawful distributions?

Answer 51

Directors are not liable for distributions approved in good faith:
1. based on financial statements prepared according to reasonable accounting practices, or on a fair valuation or other method that is reasonable under the circumstances, or
2. by relying on information from officers, employees, legal counsel, accountants, etc., or a committee of the board of which is not a member

Question 52

When is a shareholder liable for an unlawful distribution?

Answer 52

Shareholders are personally liable for an unlawful distribution only if they knew the distribution was improper when they received it

Question 53

What are fundamental corporate changes?

Answer 53

Fundamental corporate changes include:
* Most amendments of the articles of incorporation
* Mergers
* Share exchanges
* Dispositions of all or substantially all assets outside the ordinary course of business
* Dissolution

Question 54

What is the general procedure for undertaking a fundamental corporate change?

Answer 54

The basic procedure for undertaking any fundamental corporate change is as follows:
1. a majority of the board of directors adopts a resolution recommending the fundamental change;
2. all shareholders (whether or not entitled to vote) are sent notice of the proposed change; the notice must (i) describe the change and inform the shareholders that a vote on the matter will be taken at a shareholders’ meeting and (ii) be given not less than 10 days or more than 60 days before such meeting;
3. the change is approved by the shareholders; AND
4. the change is formalized in articles of amendment, merger, etc. that are filed with the applicable Secretary of State

NOTE: Although the MBCA standard for shareholder approval of a fundamental change only requires that votes for exceed votes against the change, MANY STATES require shareholder approval of a fundamental change by a majority of the votes entitled to be cast

Question 55

What is the procedure for undertaking a merger or consolidation?

Answer 55

For both mergers and consolidations, board of director action by both corporations is required, as well as notice to shareholders and shareholder approval (generally by both corporations)
* If approved, the surviving corporation must deliver articles of merger or consolidation to the Secretary of State

Question 56

When is a transfer of all or substantially all assets outside the ordinary course of business a fundamental corporate change?

Answer 56

The transfer of all or substantially all assets of a corporation (e.g., 75% or more) outside the ordinary course of business is a fundamental corporate change for the TRANSFERRING corporation only

Question 57

What is a dissenting shareholder’s right of appraisal?

Answer 57

If a corporation approves certain fundamental corporate changes, the shareholders who did not vote in favor of the change may have appraisal rights–the dissenting shareholder right of appraisal is the right of a shareholder to force the corporation to buy their stock for fair value

Question 58

What fundamental changes will trigger the right of appraisal?

Answer 58

Only the following fundamental corporate changes will trigger the right of appraisal:
1. Mergers or consolidations
2. Transfer of all or substantially all assets outside the ordinary course of business
3. Transfer of shares in a share exchange
4. Coverting to another form of business

Question 59

When do appraisal rights not apply to a corporation?

Answer 59

There is no appraisal right if:
1. the company’s stock is listed on a national exchange (i.e., it is a publicly held corporation); or
2. the shares involved have a value of at least $20 million (exclusive of shares held by senior executives, directors and >10% shareholders)

Question 60

How does a shareholder perfect a right of appraisal?

Answer 60

For a shareholder to perfect a right of appraisal:
1. if the proposed corporate action will trigger appraisal rights, the notice of the applicable shareholders’ meeting must state that the shareholders will be entitled to exercise their dissenting rights;
2. before the shareholders vote, the dissenting shareholder must file with the corporation a written notice of objection and intent to demand payment;
3. at the shareholders’ meeting, the shareholder must abstain or vote against the action;
4. if the action is approved, within 10 days after approval the corporation must notify all shareholders who filed an intent to demand payment of the time and place to submit their shares (and other terms of the repurchase);
5. within the time set by the corporation, the shareholder must make written demand to be bought out and tender their shares to the corporation; and
6. the corporation must pay the dissenters the amount the corporation estimates as the fair value of the shares (plus accrued interest)

Question 61

What happens if a dissenting shareholder is dissatisfied with the corporation’s determination of fair value for their shares?

Answer 61

If a shareholder is dissatisfied with the corporation’s determination of value, the shareholder has 30 days to send the corporation their own estimate of value and demand payment of that amount (or the difference between her estimate and the corporation’s estimate)
* If the shareholder and corporation cannot agree on the fair value of the shares, the corporation must file an action within 60 days of receiving the shareholder’s demand requesting the court to determine the fair value of the shares
* If the corporation fails to do so, the corporation must pay what the shareholder demanded

Question 62

What does rule 10b-5 provide?

Answer 62

SEC rule 10b-5 makes it unlawful for any person, directly or indirectly, to use any means or instrumentality of interstate commerce to (1) employ any device, scheme or artifice to defraud, (2) make any untrue statement of a material fact or omit to state a material fact, or (3) engage in any act, practice or course of business that would operate as a fraud, in connection with the purchase or sale of any security

Question 63

What are the elements of a private cause of action under Rule 10b-5?

Answer 63

A private plaintiff must show the following elements to recover damages under rule 10b-5:
1. defendant engaged in fraudulent conduct (e.g., material misrepresentation or omission);
2. means of interstate commerce were used;
3. materiality (e.g., misrepresentation or omission of a material fact);
4. scienter (either intent to deceive, manipulate or defraud, or recklessness as to truth);
5. purchase or sale of a security by plaintiff;
6. reliance on defendant’s fraudulent statement, omission or conduct (presumed in public misrepresentation and nondisclosure cases); and
7. damages caused by defendant’s fraudulent conduct (limited to the difference between the price paid/received and the average share price in the 90-day period after corrective information is disseminated)

Question 64

When is a fact “material” under Rule 10b-5?

Answer 64

A fact will be considered material under rule 10b-5 if a reasonable investor would consider it important when making an investment decision

Question 65

What is insider trading?

Answer 65

Rule 10b-5 prohibits “insiders” from trading securities on the basis of material non-public information (i.e., information not disclosed to the public that an investor would think is important when deciding whether or not to invest in a security)

Question 66

Who is liable for insider trading under rule 10b-5?

Answer 66

Corporate insiders, such as directors, officers, controlling shareholders, and employees of the issuer are deemed to owe a duty of trust and confidence to their corporation that is breached by trading on material non-public information
* When an insider gives a “tip” of inside information to someone else who trades on the basis of the information, the TIPPER can be liable under rule 10b-5 if the tip was made for any improper purpose
* The TIPPEE can be held liable only if (1) the tipper breached a duty and (2) the tippee knew or should have known the tipper was breaching a duty

Question 67

What is misappropriation?

Answer 67

Under the misappropriation doctrine, a person who owes a duty of trust and confidence to the SOURCE of the material nonpublic information has a duty to abstain from trading on the basis of such information or disclose the information

Question 68

What does Rule 16(b) provide?

Answer 68

Section 16(b) requires any director, officer or shareholder owning more than 10% of a class of the corporation’s stock to surrender to the corporation any profit from the purchase and sale, or sale and purchase, of any equity security within a 6-month period

Question 69

When does Rule 16(b) apply?

Answer 69

Section 16(b) applies only to “reporting” corporations–i.e., publicly held corporations (1) listed on a national exchange or (2) with at least 2,000 shareholders (or 500 non-accredited investor shareholders) and more than $10 million in assets