Corporations Law Flashcards
Default Rules for Notice of a Special Meeting
Unless the articles of incorporation or bylaws provide otherwise, a notice of a special meeting of a corporation’s board of directors must be given at least two days prior to the date of the meeting. model bus. The notice must include information regarding the time, location, and date of the meeting but does not need to include information regarding the purpose of the meeting. Id
How a Director may Waive Improper Notice of a Meeting
However, a director who attends a special meeting of the board of directors despite not receiving proper notice waives such notice unless the director objects to the holding of the meeting and thereafter does not vote at the meeting.
Quorum
In order for action taken at a special meeting of directors to be proper, a quorum must be present at the meeting. MBCA § 8.24(c). Unless the articles of incorporation or bylaws provide otherwise, when a corporation has a fixed number of directors, a quorum consists of a majority of that fixed number.
How to be Validly Present at a BOD Meeting
While directors generally are entitled to participate in special meetings over the telephone, such participation is valid only if all directors participating “may simultaneously hear each other during the meeting.” MBCA § 8.20. Only directors who satisfy this requirement are deemed to be present at the meeting. Id.
Duty of Care
Subject to the business-judgment rule, the duty of care requires the member to “act with the care that a person in a like position would reasonably exercise under similar circumstances and in a manner the member reasonably believes to be in the best interests of the company.”
Duty of Care/Duty of Loyalty Statement
A director/Member must discharge her duties in good faith and with the reasonable belief that her actions are in the best interest of the corporation. She must also use the care that a prudent person in a like position would reasonably believe appropriate under the circumstances.
When the duty of loyalty is breached, the burden is on
the controlling shareholder, officer, or director to prove that the transaction was fair.
Derivative Action Suit
An action brought on behalf of the corporation/LLC. a member-managed LLC may be brought only if (1) a demand is made on the other member to bring an action and the member fails to do so, or (2) such demand would be futile.
Direct Action Suit
An action brought by an individual member or shareholder against an LLC/Corp. Plaintiff here would have to “plead and prove an actual or threatened injury that is not solely the result of an injury suffered or threatened to be suffered by the limited liability company.
Voluntary Dissolution of a Corporation/LLC
BOD and Shareholder Approval. File notice of intent to dissolve with the Secretary of State. Corp stays in existence to wind up. Notify Creditors so they can make claims.
Involuntary Dissolution of a Corporation/LLC
Done by court order. Can be petitioned because of 1. Director abuse, waste of assets, misconduct 2. Director deadlock that harms the corporation 3. Shareholders fail at consecutive annual meetings to fill a board vacancy 4. Oppression, when actions by controlling shareholders violate the reasonable expectations of non-controlling shareholders An alternative to this is ordering the LLC or Corp to buy out the objecting shareholder or member. (especially in Close Corporations)
Piercing the Corporate/LLC Veil
- Corporation/LLC is an alter ego 2. Corp/LLC doesn’t follow formalities 3. Commingling of Assets 4. Deception of Creditors 5. Undercapitalization at the creation of LLC/Corp
Shareholder Modification of Bylaws
Shareholders may modify the corporation’s bylaws. The MBCA states that the bylaws “may contain any provision that is not inconsistent with law or the articles of incorporation.”In addition, the MBCA was revised in 2009 to address shareholder nomination of directors in public corporations (known as “proxy access”) and specifies that the bylaws “may contain . . . a requirement that . . . the corporation include in its [proxy materials] one or more individuals nominated by a shareholder.” Bylaws may modify the procedures and prcoesses for director elections.
“Business and Affairs of the Corporation”
Shareholders typically cannot force BOD to engage in specific mgmt activities. Although SH’s are generally limited to adopting precatory resolutions that recommend or encourage board action, this limitation does not apply when shareholders have specific authority to take binding action on their own, such as to amend the bylaws
Amending Bylaws
Under the MBCA, shareholders have the power to amend the bylaws. See Point One. The board shares this power with the shareholders, unless (1) the corporation’s articles “reserve that power exclusively to the shareholders” or (2) “the shareholders in amending, repealing, or adopting a bylaw expressly provide that the board of directors may not amend, repeal, or reinstate that bylaw Further, a shareholder-approved bylaw generally can limit the power of the board to later amend or repeal it if shareholders approve a bylaw amendment that limits further board changes, the board would nonetheless retain the power to “tinker” with the bylaw to safeguard the voting process, but could not repeal the shareholder-approved bylaw.
Corporation by Estoppel
The doctrine of corporation by estoppel is generally limited to contract cases and provides that counterparty to a contract with a corporation that was defectively incorporated will be estopped from denying the existence of the corporation if the counterparty subsequently
wants to get out of being in the contract. Again, there is a requirement that the purported incorporators be unaware that the incorporation was defective.
