Corporations Law

Question 1

What is a corporation

Answer 1

A seperate Legal entity

1. SH have limited liability (only investment)
2. Shares are freely transferable (liquidity)
3. No fixed date of dissolution (perpetual)
4. BOD - Centralized Management

Question 2

What is a Promoter and Incorporator?

Answer 2

• Promoter - Prepares corp for commencing business
  
  • bears significant responsibility
• Incorporator - in charge of setting up (sometimes a promoter)

Question 3

Special Obligations of Promoters

Answer 3

Need to disclose when receiving stock for services

Question 4

Subscription for Shares

Answer 4

Promise to purchase a prescribed # of shares for a specified amount after formation

• lasts 90 days
• creditors can enforce if corp goes insolvent

Question 5

K’s w/ 3d

Answer 5

Not liable for K’s made by promoters unless ratified after formation

Question 6

Certificate of Inc.

Answer 6

Must be filed w/state

Must include

• name
• purpose
• # of shares
• county, designation of Sec of State
• Registered Agent name and address

Question 7

Org Meeting

Answer 7

Formal Meeting

• Adopt bylaws
• elect directors
• conduct any other business

Question 8

Bylaws

Answer 8

May contain any provision relating to business; rights of power; conduct of affairs

• may change w/majority of SH casted at a meeting

Question 9

Purposes and Powers

Answer 9

Formed for any lawful purpose

• may have additional requirements if professional services (ex. health-related)

Question 10

Defense of Ultra Vires

Answer 10

Corp cannot be obliged to undertake a K or activity beyond the scope of its powers

Question 11

Controversial Corp Activities

Answer 11

BOD can

• Bind K’s beyond their term (unless unreasonably lengthy)
• Donate to Political campaigns
• Reasonable charitable donations

Question 12

Limited Liability of SH

Answer 12

SH not personally liabile for debts and obligations of the corp

• 10 largest SH have unlimited liability for unpaid employee wages/benefits

Question 13

Piercing the Corp Veil

Answer 13

What does it mean to pierce?

“To prevent fraud and injustice”

Pierce when:

• abuse of corporate form

Courts look to:

• alter ego? Evading K obligations?
• inadequately capitalized

Question 14

Factors that determine Capital Structure (3)

Answer 14

Risk

Return

Control

Question 15

Issuance of Shares

Answer 15

If corp used all authorized shares can still get BOD and SH approval for more

• SH have financial rights to dividends

Shares are authorized / issued / outstanding

Question 16

Par Value

Answer 16

Minimum amount taht must be paid

No Par = No minimum amount required

Question 17

Appropriate Consideration for Shares

Answer 17

No Requirement that each SH pay some consideration, but w/o fill disclosure may raise FD

Adequate Consideration:

• Money or Property,
• performance of services,
• obligations to pay
• prior performance

Question 18

IN order to pay Dividends

Answer 18

Needs to pass two tests

1. Equitable Insovlency Test
2. Balance Sheet Insolvency Test

Corp MUST also have a surplus = Net assets exceed stated capital.

• Stated capital -> aggregate amount received by the corp based on par of shares of stock

Question 19

Directors and Officiers Fiduciary Duties

Answer 19

Duty of Care:

• Make a decision in Good Faith and of oridinary prudent person in a like position

Duty of Loyalty:

• Pur corporate interests ahead of their own; test is to look at fairness
  
  • You cannot usurp or self-deal

Question 20

BJR?

Answer 20

A rebuttable presumption that Directors are better equipped than courts if they actions are

1. Disinterested
2. Reasonably Diligent
3. Good Faith

If not met, court may review and the Director may be held personally liable. Court looks to the decision-making process, so bad decisions are allowed.

• No BJR if done illegally, bad faith, Neg.

Question 21

Corporate Opportunity Doctrine

Answer 21

Cannot exploit info/opportunities acquired or made available bc of corporate position for personal gain

Unless, after full disclosure, Corp declines to persue or are clearly unable to exploit. (Financial inability of Corp is not sufficient exception)

Test -> Interest / Line of Business / Fairness

Question 22

Derivative Actions

Answer 22

Harm primarily done to the Corp, so Corp should have relief. Any harm to the SH is derivative bc it comes out of their position

Procedural Requisites, P must:

• have been a SH during the alleged harm
• must have continued to be a SH throughout the litigation

If D is successful, Res Judicata and P must pay for legal fees

Question 23

To Bring a SH Derivative Suit

Answer 23

• SH must make a demand upon the BOD
  
  • Demand is futile if majority of BOD is interested, D’s fail to inform themselves of the transaction, or D fails to execute BJR