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Corporations & LLC Flashcards

1
Q

What do Articles of Incorporation contain?

A
  1. Corp name;
  2. Number of shares authorized to issue;
  3. Corp address & name of initial registered agent; AND
  4. Name & address of each incorporator.
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2
Q

Between AoI and Bylaws, which one controls when there is conflict?

A

Articles of Incorporation

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3
Q

What are bylaws?

A

Rules and regulations adopted by the BoD that govern internal operations of a corp.

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4
Q

Can shareholders amend or repeal the bylaws?

A

Yes

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5
Q

Can BoD amend or repeal bylaws?

A

Yes, UNLESS:

  1. AoI exclusively reserve that to SH; OR
  2. SH (in amending bylaws) expressly state BoD cannot amend or reinstate that specified bylaw.
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6
Q

What if the bylaw deals with director nominations?

A

BoD retain the power to safeguard the voting process BUT cannot repeal a SH-approved bylaw.

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7
Q

How is an LLC formed?

A
  1. Articles of organization is properly filed with Secretary of State; AND
  2. LLC has at least 1 member.
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7
Q

When is a promoter personally liable?

A
  1. Purports to act as or on behalf of the corp; AND
  2. Knows no corp. was formed
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8
Q

Is the promoter still personally liable if the corp. subsequently adopts the k?

A

YES. Both corp. and promoter will be liable if adopted.

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8
Q

What is a “promoter”?

A

Someone who acts on behalf of the corp. that has not been formed.

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9
Q

When is the promoter NOT liable?

A
  1. Subsequent novation; OR
  2. K explicitly provides promoter has no personal liability.
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10
Q

When is a corp. liable on a K made by promoter?

A

A corp. is NOT liable on a K made by the promoter UNLESS:

Expressly or impliedly adopts the K post-incorporation.

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11
Q

What are the elements for an implied adoption?

A
  1. Corp knows/has reason to know material terms of K; AND
  2. Accepts some benefit of the K.
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12
Q

What if a corp. formation is defective?

A

The owners may be personally liable for corp. K and obligations.

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13
Q

Exception to defective corp. formation (under RMBCA)

A
  1. Person acts as or on behalf of corp.
  2. Knowing the corp. was not formed
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14
Q

De Facto Incorporation

A

Exists when the entity:

  1. made good faith attempt to incorporate;
  2. is eligible to incorporate; AND
  3. took action that it considered itself a corp.
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15
Q

What does the De Facto Incorporation protect?

A

Personal liability of persons UNAWARE that a corp. was not properly formed.

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16
Q

Incorporation by Estoppel

A

A person/entity may be estopped from denying that a business is a corp. when it treated the business as such.

Does NOT apply to tort actions.

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17
Q

SH’s personal liability

A

Generally NOT personally liable for corp. liabilities and obligations

BUT court may pierce corp. veil to impose personal liability in certain situations.

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18
Q

Piercing Corporate Veil

A

Court may disregard corp. form and hold individual SH/director/officer PERSONALLY LIABLE for actions take ON BEHALF OF THE CORP. when:

  1. Corp. acting as alter ego (used for personal use);
  2. Failure to follow corporate formalities;
  3. Inadequately capitalized at its inception; OR
  4. To prevent fraud.
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19
Q

PCV for LLC

A

Same as for corp. BUT failure to follow formalities NOT grounds for PCV.

20
Q

SH/Member liability for own torts

A

ALWAYS liable for their own torts.

21
Q

Dividends & Distributions

A

Distributions are declare at the discretion of the BoD.

Once dividend is DECLARED, the SH has legal right to the distribution.

22
Q

SH’s right to inspect books and records

A

Right to inspect and copy the corp’s accounting records, excerpts of BoD meetings, and record of SH if:

  1. during regular business hours;
  2. 5 days written notice;
  3. good faith and proper purpose;
  4. describe purpose with particularity; AND
  5. request connected with purpose.
23
Officers
The BoD may ELECT individuals as Officers to manage the day-to-day business of the corp.
24
Actual Authority
Officer have the authority to act with their duties: 1. Outlined in the bylaws; OR 2. provided by the BoD.
25
Apparent Authority
Officers may bind corp when: 1. 3P reasonably believes the person/entity has authority; AND 2. That belief is traceable to corp's manifestation's (holding officer out as having authority).
26
Authority of Members/Managers (LLC)
Each member has auhtority to bind the LLC for business purposes.
27
Acts within ordinary course of business in LLC
Need approval of majority of members.
28
Acts outside the ordinary course of business in LLC
Need consent of ALL members.
29
Express Actual Authority in LLC
Authority comes from Operating Agreement or from managing members/managers.
30
Implied Actual Authority in LLC
Authority to take actions that are reasonably incidental or necessary for the person's authorized duties.
31
Apparent Authority in LLC
Each member can bind LLC if action is MADE IN THE ORDINARY COURSE OF BUSINESS, unless: 1. Member lacked auhtority; AND 2. Other party had notice of lack of authority.
32
Business Judgement Rule
Director's actions must be: 1. In good faith; 2. With reasonable belief that they are acting in the best interest of the corp; AND 3. With the care a person in that position would reasonably believe is appropriate. If ALL 3 are met, then Director is NOT liable.
33
Duty of Care
Directors are fiduciaries of the corps and owe a duty of care.
34
What if director breaches duty of care?
He may personally liable to the corp. for any losses that result.
35
Duty of Loyalty
Director must act in the best interest of the corp. and without personal conflict.
36
What is forbidden under Duty of Loyalty?
Director must not: 1. Enter into conflict of interest transactions; 2. Usurping a corporate opportunity; 3. Competing with corp.; OR 4. Trading inside info.
37
When is a transaction not a breach of conflicting interest?
1. Approved by majority of disinterested directors AFTER full disclosure of material facts; 2. Approve by majority of disinterested SH; OR 3. Transaction as a whole was fair at time it was entered (fair price + beneficial to corp. + fair dealing).
38
When does conflict occur?
Director/officer (or their family member): 1. Is a PARTY; OR 2. Has a beneficial interest in the transaction OR closely linked to it; OR 3. Involved with another entity that is doing business with the corp. AND that transaction would normally be brought before the BoD.
39
Restricting Fiduciary Duties (Corporations)
AoI MAY eliminate or limit personal liability of director for actions taken or not taken.
40
Duties owed in a Member-Managed LLC and Manager-managed LLC
Members or managers owe duty of loyalty and duty of care.
41
Direct Action
May be brought when there has been a BREACH of a duty owed to a SH (or member) of a corp. The injury CANNOT be solely the result of an injury suffered by the corp. Damages awarded to SH or member.
42
Derivative Action
When SH is suing to enforce corp.'s claim.
43
Derivative action requirements:
SH required to: 1. Own stock in corp. at time claim arose; 2. Be a SH through entry of judgment; 3. Fairly and adequately represent the corp.'s interest; AND 4. Make written demand to corp. to take action.
44
When can a derivative suit be commenced?
Cannot be commenced UNTIL 90 days AFTER the demand was made, unless the corp.: 1. Rejects the demand; OR 2. Will suffer irreparable harm if forced to wait.
45
Derivative suit in an LLC
Same elements as corp. EXCEPT: 1. May be brought WITHIN A REASONABLE TIME after the demand was made; AND 2. Demand requirement may be WAIVED if futile.
46
Damage awarded in derivative suit
Paid directly to the corp. BUT SH/member may recover reasonable costs of the litigation.
47
Dismissal of derivative action by BoD
MUST be dismissed (on motion by corp.) if: 1. Majority of BoD's qualified directors; 2. Have determined in good faith; 3. After conducting reasonable inquiry; AND 4. Action is NOT in the best interest of the corp.
48
Merger of a corp.
Need approve by BoD and Corp. first then SH of BOTH must approve with a majority vote.

Corporations & LLC (1 decks)

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