Corporations & LLCs Flashcards
What is the Business Judgement Rule?
The BJR is a presumption that a director’s decision may not be challenged if the director acted in good faith, with the care that an ordinarily prudent person would exercise in a like position, and in a manner the director reasonably believed to be in the best interest of the corporation.
What does a director need to do to ensure a transaction won’t be set aside for conflicts of interest?
(1) The director must disclose all material facts of the transaction to disinterested members of the board or Shareholders or (2) the transaction was fair to the corporation.
Can a corporation’s articles of confederation limit or eliminate directors’ personal liability for money damages to the SHs or corporation? And if so to what extent?
Yes, the AOC can limit or eliminate personal liability for money damages to the corp or SHs EXCEPT to the extent that the director received a benefit to which he was not entitled, intentionally inflicted harm on the corporation or its SHs, approved unlawful distributions, or intentionally committed a crime.
What controls when the AOC and the bylaws conflict?
When the articles of incorporation and the corporation bylaws conflict, the articles of incorporation control.
Are proxies revokable for SH votes?
Proxies are generally revokable unless they say they aren’t revocable and are coupled with an interest (where the proxy owner basically pays for the right to be a proxy).
How do you revoke a proxy?
Proxies may be revoked by subsequent order or by the SH of record showing up to vote in person.
What SHs can vote in meetings?
Only outstanding shares can vote. Shares that are issued and outstanding, but that have been repurchased (treasury shares) are not outstanding.
What is a promoter?
A promoter is a person who procures commitments for capital and instrumentalities on behalf of a corporation that will be formed in the future.
Are promoters personally liable on contracts for the not yet formed corporation?
As a general rule, promoters are personally liable on all such contracts, and this liability continues even after the corporation is formed and even if the corporation also becomes liable on the contract by adopting it.
When will the promoter not be liable on the K?
A promoter will not be liable on a pre-incorporation contract if the agreement between the parties expressly indicates that the promoter is not to be bound.
In that case, the “contract” is considered to be an offer to the proposed corporation.
Are corporation’s liable for contracts entered into by promoters?
As a general rule, a corporation is not liable on a contract entered into by a promoter. However, the corporation can become liable if it adopts the promoter’s contract.
How can a corporation adopt a contract by a promoter?
Adoption can be express (eg by resolution by the BOD with knowledge of the material facts) or implied (by acquiescence or conduct normally constituting estoppel, such as accepting the benefits of the contract if done with knowledge of the material facts).
A corporate president is …
A corporate president is an agent of the corporation and has whatever power the corporation grants him.
What does the president have the power to do?
- As a general rule, unless specifically excluded by the corporation, a president will have the power to enter into ordinary contracts involving the day-to-day operations of the corporation.
- A corporate president can have the power to enter into extraordinary transactions if authorized by the BOD.
Does the BOD have power to authorize fundamental corporate changes?
The BOD does not have the power to authorize fundamental corporate changes without SH approval.
What must the BOD do to enact a fundamental corporate change?
To enact a fundamental corporate change, the directors must first pass a resolution to implement the plan and the plan is then approved by the SHs.
SHs who dissent from a fundamental corporate change can
SHs who dissent from a fundamental corporate change can force the corporation to purchase their shares at a fair price.
How do SHs use the appraisal remedy?
To use the appraisal remedy, SHs must
- file an objection to the transfer before or at the SHs meeting at which the vote is taken;
- they must not vote in favor of the plan; and then
- they must send the corporation a written demand for the fair value of their shares.
- The SHs must also deposit their shares with the corporation as directed.
- If the corporation does not want to pay what the SHs demanded the corporation must file a suit to have the court determine fair value.
