Corporations & LLCs Flashcards
Piercing the Veil
Priority: High
Generally, shareholders, directors, and officers are not personally liable for the liabilities and obligations of the corporation. Courts may pierce that veil if:
1. the corporation is acting as an alter ego of the shareholders, with little or no separation
2. shareholders failed to follow corporate formalities
3. the corporation was inadequately capitalized at its inception to cover debts and prospective liabilities
4. it is necessary to prevent fraud
- More likely to pierce for torts than breach of contract
- Passive investors cannot be held personally liable
- LLC does not need to follow formalities, othewise the same
- A person is always liable for their own torts
Proxy Voting
Priority: High
A shareholder may vote at shareholder meetings personally or through a proxy. For a proxy to be valid, it must be signed on an appropriate proxy form or electronically transmitted. Oral proxy appointment is invalid.
Proxy holders must act in accordance with the agreement between them and a proxy may be revoked at any time, even if the agreement says its is irrevocable, unless it is tied to a legal interest making it irrevocable.
Proxy appointments coupled with legal interst:
* pledgee (person who lends money and accepts a pledge for the loan)
* person who purchased or agreed to purchase shares
* creditor who extended credit
* employee whos employe contract requires the appointment
* party to a voting agreement
Shareholder’s Right to Inspect
Priority: High
A shareholder has an unqualified right to inspect and copy the following records during business hours with 5-days written notice:
1. Articles of Incorporation
2. Bylaws
3. Resolitions of the Board of Directors concerning the classifications of shares
4. Minutes of shareholder meetings for the past 3 years
5. written commnications sent to the shareholders within the last 3 years
6. names and business addresses of the current Directors and Officers
7. most recent annual report
A shareholder has a qualified right to inspect and copy the following records during business hours with 5-days written notice if the demand is made in good faith with particularity and a proper purpose.
1. acounting records
2. excerpts of the boar dof director’s meeting minutes
3. record of shareholders
- Proper Purpose = purpose reasonably relevant to the shareholder’s interest as a shareholder.
- Good Faith = must present some evidence to establish a credible basis to infer possible wrongdoing
- Bylaws and Articles of Incorporation cannot abolish shareholder right to inspect.
Director’s Duty of Care
Priority: High
Directors owe a fiduciary duty of care to the corporation. This duty includes the requirement to reasonably:
1. act in good faith
2. act in the best interest of the corporation
3. act with the care reasonably appropriate under similar circumstances
4. be informed on decisions they make
Generally directors acting with a duty of care are not personally liable for adverse consequences of the organization under the Business Judgement Rule
Directors breaching the duty of care may be held personally liable to the corporation for any losses suffered as a result.
Director’s Duty of Loyalty
Priority: High
A director owes a corporation a fiduciary duty of loaylty to act in the best interests of the corporation and without personal conflict.
A conflicting interest transaction may be cured by:
1. approval of a majority of disinterested directors
2. approval of a majority of disinterested shareholders
3. transaction, as a whole, was fair
Examples of disloyal conduct:
* Entering into conflicting interest transactions
* Usurping a corporate opportunity
* Competing with the corporation
* Trading on Inside Information
Direct Actions
Priority: High
A shareholder or member may bring a direct action against a officer or director for an injury or breach of a duty owed to the shareholder. The shareholder must prove the actual injury is not soley the result of an injury suffered by the corporation.
- An action to compel a dividend is an example of a shareholder direct action
Derivative Actions
Priority: High
A shareholder or member may bring a derivative action to enforce the corporation’s claim, not personal claims. For the action to be valid:
1. it must be a claim that the corporation could have brought itself, and has harmed the corporation in some way.
2. the individual must have been a shareholder at the time of the act or ommission
3. remain a shareholder until judgement
4. fairly and adequately represent the interest of the corporation
5. make a written demand of the corporaiton to take suitable action, and then wait 90 days unless corporaiton rejects demand or will suffer irreprable harm
Findamental Changes
Priority: High
A dissenting shareholder is entitled to appraisal rights and to obtain payment of fair market value for shares for the following fundamental changes:
1. when shareholder had right to vote on merger plan
2. shareholder of a subsidiary in a short form merger
3. shareholder in a corporation whos shares were acquired in a share exchange
4. shareholder has the right to vote on the distribution of all or substantially all of the corporate assets
5. amendment to the articles of incorporation materially and adversely affects shareholder’s rights
May force payment if:
1. shareholder gave notice before vote
2. change was effectuated
3. shareholder did not vote in favor of the change
- Not for publicly traded companies
